R5FX and the Shanghai Clearing House (SHCH) will launch a new electronic marketplace next month, in a move which will enable Chinese banks to directly trade offshore RMB with London for the first time.
The platform, called Connect, is due to go-live on 18 December – following confirmation from the People’s Bank of China. Eight Chinese banks will be participating from launch, with further banks and institutions to be added at a later date.
The products available for trading in this first phase will be USD/HKD, GBP/USD and EUR/USD. Profit & Loss understands CNH and the remaining G10 currency pairs may also be added towards the end of Q1 2018.
“This partnership is all about connecting Chinese banks with the London FX market and giving them equal access to deep liquidity,” says Jon Vollemaere, CEO and founder of R5. “Connect opens up the London FX market to Chinese banks and our central credit and clearing model means they can trade with an expanded group of counterparties and trade on the best prices.”
Shanghai-based banks will start using the platform from phase one, followed by further banks across China. There are a further 17 banks based in Shanghai which are also expected to be onboarded to Connect – and a further 30 institutions which R5 aims to add in the platform’s second phase.
They will also be able to use R5’s central clearing and credit platform, R5C3, with R5 directing these trades to SHCH for settlement.
Connect is an additional service specifically designed for Chinese banks, with the potential to also offer these institutions access to R5’s suite of emerging market currencies in the future.
Initial volumes in RMB transactions are expected to be in the region of USD 2 billion. R5 and SHCH also plan to extend the offering to include swaps, forwards and bonds, while also branching out into additional RMB offshore markets such as Hong Kong, Singapore and New York.
“R5 and SHCH are working in partnership to deliver true innovation,” Vollemaere adds. “Not only is this expected to increase liquidity in the global FX market, but it will also strengthen London’s position as a major offshore RMB centre.”
The news was announced at SHCH’s inaugural London seminar on cross-border FX this week, which was co-hosted with R5 and the China Construction Bank.
Mei Jin, chief representative from the People’s Bank of China (PBoC) European Representative Office, says she hopes the new Connect service initiative would act as a high-speed link between China and London’s FX markets while also further promoting RMB internalisation.
“China continues to open up,” Jin adds. “In the last several years, the PBoC has taken effective steps to reduce FX controls and promote renminbi convertibility in a prudent manner.”
Ben Cackett, head of global exports and investment for the City of London also welcomed the new clearing service, adding that the model of conducting cross-border transactions on the London based e-platfrom and clearing centrally by SHCH will give “full play to the advantages of the infrastructures in both countries and satisfying the FX trading and clearing needs of each side”.