Chinese mainland launches Swap Connect northbound trading link with Hong Kong
Updated 14:23, 16-May-2023

China on Monday launched the much-awaited Swap Connect, a derivatives mutual market access program that will now facilitate the northbound trading of interest rate swaps, marking yet another new milestone in the financial cooperation between Hong Kong and the mainland markets.

The trading link provides a "convenient and secure" channel for international investors to trade interest rate swap products in the Chinese mainland via a connection between financial institutions in the Hong Kong and Chinese mainland markets, according to an official statement released by the Hong Kong Monetary Authority (HKMA). 

The scheme aims to facilitate global investors' management of interest-rate risks arising from their allocation to bonds in the Chinese mainland, it said.

"The launch of northbound trading of Swap Connect is another new milestone in the financial cooperation between Hong Kong and the [Chinese] mainland. It will create favorable conditions for global investors to increase their participation in the onshore bond market, and carries special significance for enhancing the recognition of and confidence in RMB (renminbi) bonds in the international market," said Eddie Yue, chief executive of the HKMA.

The current northbound trading of Swap Connect will also provide new opportunities for Hong Kong's financial institutions and strengthen Hong Kong's role as a global risk management center and offshore yuan hub, he said.

The HKMA said it will closely monitor the implementation of Swap Connect together with relevant regulatory and enhance operational arrangements in accordance with market development and investor needs. It said it will continue to explore with the mainland authorities how it can provide more diversified risk management tools to international investors.

Meanwhile, Pan Gongsheng, deputy governor of the People's Bank of China (PBOC) and administrator of the State Administration of Foreign Exchange, spoke at the launching ceremony.

He said the PBOC will next implement the decisions of the Communist Party of China (CPC) Central Committee, continue to deepen the mainland's pragmatic cooperation with Hong Kong, firmly support the construction of an international finance center, and continue to steadily promote the reform, opening-up and high-quality development of China's financial markets.

Today's launch of Swap Connect represents another important step in the internationalization of China's renminbi, and overseas traders who currently hold more than 3 trillion yuan ($432 billion) in Chinese bonds will be able to manage their currency risks more effectively by directly accessing China's financial infrastructure, Michael. R. Powers, the Zurich Insurance Group Chair Professor at Tsinghua University's School of Economics and Management, told CGTN. 

This development, viewed in context with previous Connect programs for stocks, bonds, and various wealth-management products, demonstrates China's long-term commitment to opening its markets in all business sectors, he added.

On Monday, HSBC and Standard Chartered both announced the successful completion of the first batch of northbound transactions between Hong Kong and the Chinese mainland via the Swap Connect scheme, according to Sina Finance.

(With input from Xinhua; Cover image via CFP)

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