State Street Named Bond Connect Outstanding FX Settlement Bank

State Street Corporation​ today announced that it has been awarded the Outstanding FX Settlement Bank in the Bond Connect program by the Bond Connect Company.

As an FX settlement bank in the China-Hong Kong Bond Connect Scheme with membership of the China Foreign Exchange Trade System (CFETS), State Street offers clients direct onshore Chinese Yuan (CNY) and offshore Chinese Yuan (CNH) liquidity in spot, forward and swap markets.

"We are honored to be recognized for our effort in providing institutional investors better access to onshore CNY FX liquidity for the second year in a row," said Michele Hardeman, head of State Street Global Markets, Asia Pacific. "With the increased weight of onshore CNY bonds in the global bond indices, the amount of foreign holdings of Chinese bonds has grown more than 50% in the past year. As institutional investors increase their exposure to the Chinese bond market through the Bond Connect program, they seek to utilize both CNY and CNH for bond settlement and hedging. They need to select one currency based on economic value as CNY and CNH have different FX spot rates, and operational convenience. The two currency codes have unique operational flows and regulatory monitoring requirements. Our automated custody solution leverages a segregated securities account for each funding code and uses the securities account number as a unique identifier to track each currency."

State Street, as a global custodian bank, provides access to CNY via the onshore market, which is extremely valuable to its customers. State Street has access to clients' underlying security holdings, enabling it to perform regulatory monitoring on CNY bond settlements and hedging to ensure they adhere to regulations.

The latest development is an enhanced currency conversion arrangement involving onshore RMB (CNY) under Northbound Bond Connect in March 2021. Investors can appoint two additional FX settlement banks, in addition to their primary FX settlement bank, to increase their access to liquidity.