A Reuters article posted earlier last week discussed China’s desire to open up its exchange traded funds to Western market makers. The article mentions Citadel, an alternative investment manager, and Jane Street, a trading firm. According to Reuters:
“Over the last two years, Chinese authorities have issued more licences (sic) and encouraged the development of domestic market makers. But international market makers are more experienced in providing liquidity to ETFs and the move would boost trading efficiency and lower costs, the people said, declining to be identified due to the sensitivity of the matter.”
Reuters notes that the tariff tit-for-tat between the U.S. government and other nations could pose a delay in bringing these trading and asset management firms into the Chinese markets.
Both firms are referred to as market makers. Investopedia defines a market maker as:
” … a firm or individual who actively quotes both sides of a market in a particular security by providing bids and offers (known as asks) along with the market size of each. In fact, they are obligated to engage in such trading activity. Market makers provide liquidity and depth to markets and profit from the difference in the bid-ask spread. They may also trade for their own accounts. Such trades are known as principal trades.”
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Core financial systems and financial institutions may source market makers. In other words, the cash that allows for market makers to provide bids and offers on securities and actual fulfill the sales and purchases of those securities comes from financial institutions such as banks. Western banks are already operating in China’s money markets, and I guess will be able to provide funding for market makers playing China’s emerging ETF space.
According to data from the People’s Bank of China, western banks participating in China’s money markets include Standard Chartered Bank, Citibank, HSBC, BNP Paribas, Bank of America, JP Morgan, and UBS Securities.
And if China is successful growing its money markets, it may be due in part to progress in moving its population from a society with a higher propensity to save to a society with a higher propensity to consume. China’s recently released action plan for increasing domestic consumption aims to “boost consumption, stimulate domestic demand across the board, and increase spending power by raising earning and reducing financial burdens.”
I don’t see China allowing western banks a huge advantage over their own banks, but when it comes to money markets experience, China is likely betting on the expertise of western banks to help fund domestic consumption. It does not seem very efficient for western banks to keep one foot in the country and one foot out in case they need to make a break for the door in the event of a kinetic war.
I would expect JP Morgan and Bank of America to maximize returns on the capital they have put into China and to play the long bet on the country’s continued growth. And that would mean influencing the political space between the American and Chinese governments.
The world may be hardening the borders of this increasingly multipolar world, but banks want to keep their fingers in each pot.
Alton Drew
19 April 2025
Disclaimer: The above post is for informational purposes only. If you are planning to invest or make a trade, please consult a trade professional.
If you are in need of a review of your broker or trader agreement, please contact me at altondrew@altondrew.com to schedule a consultation.
Alton Drew
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