NEWS UPDATE
DERIVATIVES ASIA
‘Last orders’ called on Libor
benchmark UK and China regulators
approve Shanghai-London
Stock Connect
The Bank of England’s deputy governor
for markets and banking has said the pace
of transition from Libor to Sonia must be
accelerated.
B
anks have been told to stop adding to their Libor
exposures by the Bank of England as the institution’s
deputy governor for markets and banking called time on the
benchmark during an event in early June.
Speaking to delegates at the Libor-focused event, Dave
Ramsden stated that there has been positive progress in
the transition from Libor to Sonia, but the pace of progress
needs to accelerate and there is much more to be done.
“The time for ‘last orders’ is now,” Ramsden said. “Firms
need to be focused on what they need to do to be able to
transact Sonia-based products; and stop adding to their
post-2021 Libor exposures. There is a growing recognition
across market participants of what transition entails. But
we need to get the message to all Libor users – firms need
to educate their customers.”
UK regulatory authorities and the Bank of England decided
to shut down the controversial Libor benchmark following
years of scandal, alleged manipulation and a decline in
activity, replacing it with the Sonia (Sterling Overnight Index
Average). In 2017, 20 banks agreed to continue making sub-
missions to Libor until 2021 to ensure a smooth transition as
the benchmark was phased out.
Research published in January found that 75% of buy-side
firms have contracts which reference Libor and a life span
beyond the 2021 deadline. The volume-weighted proportion
of interest derivatives referencing Libor that go beyond that
date is thought to be around 40%. Just 2% of investment
funds and asset managers have completed preparations and
renegotiated contracts ahead of the withdrawal of Libor in
2021, according to the research.
“There is much to welcome in sterling markets but
progress needs to accelerate… But firms should not leave it
to the last moment, relying on the efforts of others. Firms
need to invest in the necessary changes now,” Ramsden
concluded.
10 // TheTrade // Summer 2019
The Shanghai-London Stock Connect
has gone live providing international
investors access to China A-shares with-
out the need for a direct trading link.
F
inancial authorities in the UK and China have
approved the launch of the Shanghai-London Stock
Connect scheme, which went live during a ceremony at
the London Stock Exchange (LSE) in mid June.
The Stock Connect initiative, which was initially due
to launch last year, aims to encourage cross-border
investment between the UK and China, providing firms
and investors mutual access to the capital markets in
both countries via an arrangement between LSE and
the Shanghai Stock Exchange (SSE).
As part of the partnership, Shanghai-listed compa-
nies can apply to be admitted to trading on a new seg-
ment of the LSE main market, and companies which
are listed in the UK can apply for submission to trading
on the SSE. The securities traded would be in the form
of depository receipts.
“This new scheme will deepen and strengthen
connectivity between UK and China capital markets to
the advantage of both countries,” said Andrew Bailey,
chief executive of the UK’s Financial Conduct Authority
(FCA). “We both believe in the positive contribution
regulators can make in international capital markets,
and the new co-operation were announcing today
will be an important contributor to the success of the
scheme.”
Both the FCA and the China Securities Regulato-
ry Commission (CSRC) added that for institutional
investors based in the UK, the Stock Connect scheme
will offer exposure to China A-shares which previously
required a qualified foreign investor status. At the
same time, Chinese investors will see exposure to
international securities via the SSE and in their own
currency.