The China Interbank Bond Market: UCITS able to access the CIBM without QFII or RQFII quotas

Arendt & Medernach is delighted to inform you that further to discussions with the Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”), we have obtained clearance for UCITS clients to access the China Interbank Bond Market (the “CIBM”) and invest in RMB fixed income securities dealt on the CIBM, without recourse to their QFII or RQFII licenses and quotas, under the revised rules issued by the People's Bank of China (the "PBoC") this summer.

As a result, in addition to investing in RMB fixed income securities through their existing licenses and quotas, UCITS managers will now have direct access to onshore RMB fixed income securities dealt on the CIBM, irrespective of their licenses and quotas, in order to build or supplement their portfolios. This is particularly relevant for UCITS managers which do not have QFII or RQFII licenses and quotas or have used up their quotas and which can now more freely invest on the CIBM on behalf of their UCITS.

In addition to the formalities to be fulfilled by the relevant managers in China with their bonds settlement agents and the PBoC, recourse to CIBM "direct access" by UCITS managers is subject among other conditions to prior approval by the CSSF and the requirement to include a reference to CIBM “direct access” as well as particular risk disclosures in the prospectuses of the relevant UCITS.

This is excellent news for UCITS sponsors wishing to access Chinese capital markets. Arendt & Medernach has contributed to having this new channel to China recognised as compatible with UCITS rules. After Stock Connect, which gave almost unrestricted access to Chinese equity securities, clients now have similar access to RMB fixed income securities dealt on the CIBM. This, combined with the existing quota-based systems and the anticipated extension of Stock Connect to Shenzhen, offers UCITS managers the broadest possible access to RMB securities.