Hong Kong Exchanges and Clearing Limited (HKEX) today welcomed the announcement by the People’s Bank of China to allow China Government Bonds and Financial Policy Bonds, held by international investors through Bond Connect, as collateral for the Northbound Swap Connect.
HKEX’s clearing subsidiary OTC Clear plans to start accepting these instruments as collateral for Swap Connect, with a targeted launch by the end of 2024. OTC Clear and will work closely with the Securities and Futures Commission and the Central Unit Hong Kong Money Markets The Monetary Authority is preparing for this boost.
This latest enhancement to Northbound Swap Connect will help improve the capital return of investors in the program by offering them more cashless collateral options. It will also further enhance the attractiveness of onshore RMB bond ownership for international investors participating in Bond Connect.
HKEX Co-head of Markets, Glenda So, said:
“We warmly welcome this latest enhancement to Swap Connect, the world’s first mutual derivatives market access program. This development will add even more synergies between the Bond Connect and Swap Connect programs and help further support international investor participation in China’s bond market.
We look forward to working closely with our mainland partners, regulators and participants to continue to improve Swap Connect and explore the application of Chinese bonds as collateral for more HKEX products, facilitating the continued opening of China’s financial markets and supporting the internationalization of the RMB. “
Swap Connect, which connects the interbank interest rate swap markets of Hong Kong and mainland China, has seen smooth operations and steady growth in trading volume since its launch in May 2023, adding vibrancy to the region’s financial markets.
As of the end of May 2024, a total of 61 overseas institutions participated in the Northbound Swap Connect. Swap Connect’s average daily turnover totaled RMB 20 billion in May 2024, up sharply from around RMB 3 billion in May 2023.