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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.