16 October 2016

KWM Firsts - Helping to cement the internationalisation of China’s currency

The internationalisation of the RMB accelerated with the launch of China Europe International Exchange (CEINEX), a joint venture between King & Wood Mallesons’ client the Shanghai Stock Exchange, China Financial Futures Exchange and German exchange operator Deutsche Börse. The new exchange, based in Frankfurt, established the first dedicated trading platform for authorised Chinese renminbi-denominated trading outside mainland China.

CEINEX was signed in Beijing with Deutsche Börse, the Shanghai Stock Exchange and China Financial Futures Exchange on Thursday 29 October 2015 in the presence of Chinese Premier Li Keqiang and German Chancellor Angela Merkel. The platform was launched on 18 November 2015.

As the first ever dedicated global trading platform for authorised renminbi-denominated trading outside of mainland China, the establishment of CEINEX is truly unique and represents an important milestone in the opening of China’s capital markets and further internationalisation of Chinese capital market products.

The establishment of CEINEX has enabled the first ever cash market instruments to be available outside mainland China. Next to the RMB becoming a reserve currency, the establishing of CEINEX as an operating joint venture in 2015 was one the most tangible signs of the RMB's new role in the economic world order. However, from a legal perspective, the establishment of CEINEX was only the first step.

The main legal task was to build a legal framework that would form a successful platform for the continuous development and operation of CEINEX, including its regular support by its shareholders. KWM advised on both the PRC and German legal aspects of the agreement – the only law firm in the world able to do so.

The joint venture was established as a result of a high-level financial market dialogue facilitated by KWM between China and Germany over several months. The team not only navigated the different legal and regulatory systems, but we became a “legal architect” by creating a fully integrated legal blue print, which was executed in parallel with the economic alignment process.

As a result of our unique Asia intelligence, and understanding of China in particular, it meant we could achieve more, in less time, and with less friction between the parties.

The establishment of CEINEX is a major strategic milestone and a sound platform for the development of a successful capital market between Germany and China. This new platform will help to develop key offshore renminbi-denominated products, which are crucial to further capital flows between the two countries.

From a client perspective, this transaction ventured successfully into unchartered waters and achieved a strategic goal for all players and markets involved. However, the implications of creating the world's first authorised RMB trading platform outside of mainland China goes far beyond just strengthening financial cooperation between Germany and China. Its impact has helped with the RMB’s inclusion in the IMF’s SDR basket, and will further facilitate the RMB’s internationalisation in 2016 and beyond.

KWM created real value by establishing a legal framework that would satisfy the relevant parties’ economic and business objectives, whilst providing a flexible and transparent operating environment for the ongoing management of the joint venture.

KWM’s role in providing the legal and cultural interface between China and Germany was essential in this process. As the go-to firm to execute this deal, KWM has set the legal standard for the opening up of the international Chinese financial market. Following the implementation of CEINEX, KWM has been actively involved in its development and will continue to act on real product innovations, which will be launched on this new platform, going forward to include the listing of Chinese stocks.

Lead partners:

Xu Ping, KWM Beijing

Christian Cornett and Rudolf Haas,  KWM Frankfurt

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