Citi has received regulatory approval to act as an interbank bond market maker in China, becoming only the second foreign bank after JP Morgan in May last year to be allowed to quote continuous two-way prices for a range of interest-rate products.
Citi announced news of the approval on August 12. It will compete with 19 incumbent mainland Chinese market-makers, but the decision by the Peoples' Bank of China reflects the country's intention to inject more liquidity and reduce regulatory barriers in the domestic bond markets by licensing foreign market makers. China is also keen to reduce its companies' reliance on bank loans for funding and make corporate bond yields more attractive to investors, it said earlier this year.
Citibank (China) Co Ltd (Citi China), which is already active as a broker and dealer in the renminbi foreign exchange and interest-rate markets, will also be able to expand its activities to include a more diverse client base.
Paulus Mok, head of markets and country treasurer at Citi China, explained to FinanceAsia on Friday that: "Citi's markets business already has a considerable presence in China, and for some years we have been a member of the interbank bond market, acting as a dealer for all interest-rate products and with a large client base of financial institutions. By becoming a market maker, our business can go to a new level, fully integrating our operations to the Chinese money markets, allowing us to trade interest-rate swaps for onshore corporate clients, and enhancing our involvement in the bond market development."
Citi has one of the largest markets teams among international banks in China, and has been an active participant in the renminbi interbank bond market for a number of years. It is also one of the most active market markers in the country's interbank foreign exchange market.
"We have a team of 40 professionals working in our markets business, and will look to increase that number over time as our business grows, including for our new market making activities," said Mok.
"China's interbank bond market is an important arena for financial institutions to engage in funding and capital market activities for themselves and their clients," said Andrew Au, Citi's China chief executive officer in a written statement on August 12. Citi is delighted to be in a position to actively contribute to the market's continued development in our capacity as a market maker."
The move is a further indication of China's intention to encourage greater overseas participation in its local currency bond market, thereby improving its efficiency. In June, Beijing allowed the locally incorporated units of foreign lenders to sell renminbi-denominated bonds in Hong Kong.
