08 November 2017
Hong Kong
Reporter: Jenna Lomax

HKMA expands list of eligible collateral to include US dollar

The Hong Kong Monetary Authority (HKMA) has expanded its list of eligible collateral for the Renminbi (RMB) Liquidity Facility to include US dollar denominated bonds.

The bonds were first issued in Hong Kong by the Ministry of Finance of the People’s Republic of China on 2 November with a total issuance size of $2 billion, including $1 billion of 5-year bonds and $1 billion of 10-year bonds.

For overnight repo, eligible collateral consists of exchange fund bills and notes, Hong Kong government bonds, and RMB denominated bonds issued in Hong Kong by the Ministry of Finance of the People’s Republic of China, and RMB denominated bonds issued in London in 2016.

Haircut on collateral for exchange fund bills and notes and the HKMA bonds stand at 2 percent per year of remaining maturity, plus 2 percent for cross-currency haircut.

Haircut collateral on US bonds will follow the same terms and conditions.

The introduction of US bonds comes in the same week as the Hong Kong Securities and Futures Commission (SFC) announced it would be conducting a review of prime services relating to equity derivatives activities across the market.

The SFC aims to identify potential conduct issues arising from the practice adopted by prime brokers, to assess the internal controls in place, and to provide guidance on how the risks are managed.

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