Taiwan eyes expansion of offshore RMB products

The Taiwan Stock Exchange is preparing to introduce renminbi-denominated ETFs and stocks, indicating that Beijing will grant an RQFII quota to the island soon.
Taiwan eyes expansion of offshore RMB products

The Taiwan Stock Exchange is studying the feasibility of expanding its offshore RMB product, with renminbi-denominated exchange-traded funds and stocks likely to be offered on the exchange.

Speaking at a transaction services conference organised by Citi yesterday, the TSE's senior executive vice-president, Michael Lin, argues that momentum is positive for capital markets products denominated in offshore renminbi in Taiwan (dubbed CNT). 

Testament to investor demand is the rapid build-up of offshore RMB deposits at the domestic banking units of Taiwanese banks, which has reached Rmb7 billion ($1.1 billion) since February 6, when the island’s central bank allowed such deposit business by banks.

“We are seeing banks, such as ChinaTrust, having already issued offshore RMB bonds and it plans to list these issues [on the GreTai Securities Market] in March," says Lin.

"While we do not have a solid timetable, the next product to follow will be renminbi-ETFs and stocks [listed on the TSE].”

Aside from stocks, the GreTai Securities Market provides an electronic trading platform for bonds, repos and derivatives.

Taiwan’s central bank made a policy headstart in July 2011 by allowing Taiwanese banks to establish offshore banking units (OBUs) to tap RMB business opportunities. In recent months Taiwanese authorities have also been encouraging more domestic financial institutions and corporates to issue CNT bonds through OBUs of Taiwanese banks.

In Taiwan, the operation of foreign currency-related banking business is regulated differently to domestic and offshore banking units, with heavy restrictions in place on the former.

Increasingly, however, DBUs are being allowed to expand their scope of offshore RMB exchange services, thanks to a memorandum of understanding signed between Taiwan and China central banks on currency clearing arrangements last August.

The prospect of non-bank financial institutions such as securities houses or asset managers participating in offshore RMB business also appears imminent following a visit by China Securities Regulatory Commission (CSRC) chairman Guo Shuqing to Taiwan in January. 

After his visit, the CSRC announced it was considering a pilot programme to make Rmb100 billion in renminbi-denominated qualified foreign institutional investor (RQFII) quota available to Taiwanese institutions. This would add to the Rmb270 billion RQFII quota already handed to Hong Kong firms.

At present there are a handful of ETFs listed on the TSE that track A-share and H-share indices, but these are denominated in New Taiwan dollars.

Looking ahead, Lin says the addition of ETFs under RQFII would enrich the range of China-related ETFs on the TSE, with CNT-denominated ETFs possible on the back of RQFII.

Aside from China, Lin notes the TSE is also in discussion with the New York Stock Exchange on establishing a hub connecting brokers in Taiwan and New York for facilitating cross-border flows between the two markets.

Just last year, Taiwanese invested more than $5 billion in US-listed ETFs. This hub would enable Taiwanese brokers to place orders for US-listed ETFs via the TSE without the need to connect with US brokers.

Another option being explored is to introduce products tracking the US markets onto the TSE, although Lin offered no further details.

“We do not think we can prevent investors from putting their money to trade on other exchanges, the capital market is a global industry," he reflects. "Hence we want to help our brokers and investors place their orders offshore more easily."

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