Citi (China) Co Ltd announced on Tuesday it has received approval from China's central bank to act as a bond settlement agent in the country's interbank bond market, thus becoming the first US-based bank to be granted a Type A Bond Settlement Agent license.
Citi has been trading in the China Interbank Bond Market for more than 10 years, and is currently one of the most active market makers.
Harry Peng, head of securities services for Citi China, said: "Combining our leading global emerging markets FX and rates trading franchise with our on-the-ground custody network in more than 60 markets, Citi will be able to deliver a complete front-to-back China fixed income solution through the life cycle of a trade, from research, sales and trading to custody, clearing and settlement."
The People's Bank of China introduced new rules in 2015 and 2016 to broaden foreign access to the China Interbank Bond Market by expanding eligible investors and investable products.
Last year, in a step to further open up China's debt markets, the PBOC removed quota restrictions on the investment of foreign central banks, international financial institutions and sovereign wealth funds in the CIBM and simplified the procedure as long as they registered their investments.
Liu Linan, senior strategist with Deutsche Bank AG, estimated that $700 billion to $800 billion will flow into the onshore renminbi bond market in the next five years.
Data from Wind Information, a Shanghai-based financial data service provider, shows that the CIBM has grown more than six-fold since 2005 to become the third largest in the world by outstanding issuance. As of December 2016, the total value of bonds outstanding reached 64.27 trillion yuan ($9.3 trillion).
According to the PBOC, China issued various bonds worth 36.1 trillion yuan last year, up by 54.2 percent from 2015. Among the total, interbank bond issuance increased by 53.8 percent year-on-year to 32.2 trillion yuan. As of the end of 2016, 407 foreign institutional investors participated in the interbank market, compared with 302 a year earlier.