Swap Connect scheme to allow global investors to use Chinese bond holdings as margin collateral
- Authorities to launch services to help vitalise global investors’ 4.22 trillion yuan (US$580 billion) holdings
International investors can pledge their holdings of Chinese domestic bonds as margin collateral for Northbound Swap Connect trading later this year, regulators from Hong Kong and mainland China announced at a summit on Tuesday, in an enhancement of cross-border connectivity and cooperation.
The financial authorities of Hong Kong and the mainland will soon launch this service in a move that will help vitalise global investors’ 4.22 trillion yuan (US$580 billion) holdings by reducing their liquidity cost and improving capital efficiency in their interest-rate swaps.
Another risk management tool – China treasury bond futures – will be launched “in the near future”, regulators said at a function organised to commemorate the connect scheme’s seventh anniversary. Launched in 2017, the mutual access scheme allows global investors to buy mainland China-listed bonds, while the southbound channel caters to mainland China-based investors who wish to buy Hong Kong products.
Allowing the use of onshore bonds as Swap Connect collateral will “not only improve the efficiency of capital management for foreign investors, but also increase the willingness of holding China’s onshore bonds”, said Julia Leung Fung-yee, CEO of Hong Kong’s Securities and Futures Commission (SFC).
“The Hong Kong SFC, along with the financial infrastructure institutions including OTC Clearing Hong Kong, strives to launch the service by the end of the year,” she said.
The Hong Kong Monetary Authority (HKMA) and the SFC are expected to announce details later this year.
