Hong Kong Exchanges and Clearing Limited (HKEX)  welcomed the announcement from the People’s Bank of China to allow China Government Bonds and Policy Financial Bonds, held by international investors through Bond Connect, as collateral for 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 Moneymarkets Unit of the Hong Kong Monetary Authority in preparation for this enhancement. More details will be announced in due course.

This latest enhancement to Northbound Swap Connect will help improve capital efficiency of investors in the programme by offering them more non-cash collateral options. It will also further boost the attractiveness of holding onshore RMB bonds 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 derivatives mutual market access programme. This development will add even more synergies between the Bond Connect and Swap Connect programmes, and help to further support international investors’ participation in China’s bond market. We look forward to working closely with our Mainland partners, regulators and market participants to continue enhancing Swap Connect and explore the application of China bonds as collateral for more HKEX products, facilitating the continued opening of China’s financial markets and supporting the internationalisation of the RMB.”

Swap Connect, which links the Hong Kong and Mainland China interbank interest rate swap markets, 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 have participated in Northbound Swap Connect. The average daily turnover of Swap Connect totalled RMB20 billion in May 2024, up sharply from about RMB3 billion in May 2023.

Source: HKEX