Drawing on Best Practices to Facilitate Cross-Border Settlement Services
On July 11, China Central Depository & Clearing Co., Ltd. (CCDC) successfully held the second Serial (International) Academic Seminar “Pujiang Salon” in Shanghai, under the themed “Cross-border Cash Settlement: Challenges & Solutions.” With their rich experience and expertise, a total of 30 experts from 15 organizations both at home and abroad participated in the salon, including China Securities Depository and Clearing Co., Ltd. (CSDC), Euroclear, domestic and foreign-funded commercial banks, law firms, international associations, and etc. The guests shared their insights into the settlement mechanism in both exchange and inter-bank markets, and their views on best practices will pave way for CCDC’s efforts in the cross-border products and settlement services innovation and optimization.
From research and investigation on domestic and overseas market participants, foreign investors and settlement agents all agreed that services in the Chinese bond market still lag behind those in developed markets, and thus further efforts are needed to improve cross-border settlement efficiency and fund facilitation services. In order to optimize cross-border products and services and provide better services to access the market, we joined hands with correspondent banks and other industry experts in this second salon to jointly explore challenges & solutions in cross-border cash settlement, as well as in response to the conclusion discussed during the last salon that direct holding model should not prevent intermediaries from providing incremental services to investors.
In the first part of the salon, CSDC delivered a keynote speech on the settlement mechanism in China securities market, which focused on the tiered settlement model in the exchange market and settlement risk management system home and abroad. After the speech, all the participants were engaged in discussions on topics like ‘settlement finality responsibility’, ‘third-party settlement arrangement’ and etc. Then, CCDC introduced how settlement in the inter-bank bond market has evolved. Beginning from real operational issues to the utmost concerns of market members, the presentation overall casted light on the historicalevolution and the extended speculations of DVP mechanism optimism.
The second session consisted of two parts: topic sharing and panel discussion. Questionnaires were distributed and results were shared during the session to engage the audience in presentation topic-related discussions. CCDC, the Bank of China, and the Shanghai Pudong Development Bank shared their insights on “DVP mechanism optimization – tentative ideas on turn-around settlement services”, “clearing arrangements for overseas investors in the CIBM”, and “service innovations such as FX solutions under tiered participation arrangement” respectively. The inspiring presentations then aroused three high-quality and heated brain-storming among participants present, thus generating many enlightening ideas.
Through presentations, discussions, and questionnaires, the following views were formed around solutions for settlement convenience:
First, the participants acknowledged the feasibility and necessity of promoting turn-around settlement services and tiered participation arrangements in the CIBM, especially for the settlement of cross-border transactions.
Second, in terms of the turn-around settlement modes, about 46% of the respondents preferred to have the transactions automatically linked by the system, believing that this mode will lead to higher efficiency. Meanwhile, 20% of the respondents thought that the manual linking mode was unlikely to happen because the number of transactions on the same bonds reached in one day might be very limited. Also, about 46% chose the manual linking mode, mainly because automatic linking by the system might result in ambiguous legal relationship between CCDC and its settlement members, and the settlement sequence decided by the system might not meet the actual transaction purpose of the members.
Third, in terms of the frequency of turn-around settlement, 31% preferred to have 2 processing windows each day, each window lasting for 2 hours, and 1 hour off between the 2 windows; and 23% preferred 4 windows a day, 1 hour for each window, and 1 hour off between 2 windows.
Fourth, in terms of the pattern of the settlement chain, 50% of the respondents believed that “back-to-back” were the prevailing pattern and the rest votes were shared evenly among the other patterns.
Fifth, in terms of managing the principal risk under tiered participation arrangements, CCDC’s collateral management service and the cash reserve account were unanimously considered to be the most effective risk management measures.
Participants spoke favorably of the event. They all agreed that the salon this time not only raised the profile of the ‘Pujiang Salon’ brand, and also promoted the exchange platform for cross-border product innovation. Based on market demands, and aimed at promoting service implementation, the salon served as a carrier for CCDC and other market intermediaries to work out better solutions for cross-border settlement, and contribute to the opening up of China’s bond market.
The Serial (International) Academic Seminar “Pujiang Salon” is one of the moves made by CCDC in efforts to press ahead with its internationalization strategy this year. The salon, with a focus on the demand analysis, program design and marketing of cross-border products, aims to provide a platform for in-depth exchanges among practitioners in the bond markets at home and abroad, and inspire the industry to make deep discussions on topics of concern to foreign investors and cutting-edge issues of the market