Hong Kong Exchanges and Clearing Limited (HKEX) announces that its clearing subsidiary OTC Clear has implemented three improvements to Swap Connect in collaboration with the China Foreign Exchange Trade System (CFETS) and Shanghai Clearing House (SHCH).
The improvements will provide greater flexibility for international investors to manage RMB interest rate risk through China’s onshore interbank markets.
New improvements include:
- The introduction of International Monetary Market (IMM) transactions based on IMM dates, i.e. the third Wednesday of March, June, September and December, to align with common practices in international interest rate swap markets.
- The launch of the single compression service that allows participating institutions to compress transactions with the same but opposite economics. Through this service, Swap Connect participants can unwind their initial cleared trades before the expiry date, reducing their cost of capital and increasing trade settlement efficiency.
- The introduction of backdated transactions, which allow transactions with an earlier effective date and can be used with a single compression to release the transactions.
To reduce transaction costs for Swap Connect participants, OTC Clear, CFETS and SHCH will continue to waive trading and clearing fees for one year. The charge for the compression service will also be removed at its initial stage.
Swap Connect, a mutual access program linking the interbank interest rate swap markets of Hong Kong and Mainland China, has experienced smooth operations and steady growth in trading volume since its launch on 15 May 2023, adding vibrancy to the financial markets of both Hong Kong and as well as mainland China.
To celebrate Swap Connect’s first anniversary, HKEX launched the improvements in collaboration with CFETS and SHCH with the support of Hong Kong and Mainland China regulators. These measures aim to enable more international institutional investors to manage the interest rate risk of their RMB bond investments with RMB interest rate swaps, enhancing Hong Kong’s competitiveness as an international financial center and supporting RMB internationalization.
A total of 26 onshore and offshore institutions have transacted IMMs with a total notional amount of RMB 5.48 billion today. Four onshore and offshore institutions have used the solo compression service, reducing the nominal amount of RMB 5.5 billion.