The financial authorities in Chinese mainland and Hong Kong Special Administrative Region (SAR) approved clearing agencies in both markets to work with the Hong Kong Exchanges and Clearing on the rules for the bond connect scheme.
The move was announced in a joint statement by the People’s Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) on Tuesday.
A student runs past a man checking his phone in front of a display showing bank notes of different currencies in Hong Kong on November 9, 2016. /VCG Photo
The mainland-Hong Kong bond connect is a bond trading link that makes mainland's bonds more accessible to offshore investors.
Foreign investors can trade products including forwards, swaps, cross-currency swaps and options with domestic settlement agents.
The Financial Secretary of Hong Kong SAR Paul Chan applauded the move, saying it was a milestone in deepening the capital market connectivity between the two sides.
Chan said the bond connect will support the city's financial hub status and help the mainland's opening up progress.
Hong Kong Monetary Authority. /VCG Photo
It will start with northbound trading that will allow international investors to trade in the China Interbank Bond Market, the statement said, adding that there will be no caps on investment volume.
The southbound trading for mainlanders will come at a proper time after the evaluation of the financial authorities, it added.
The PBOC said the bond connect will be formally launched after relevant rules and system development are finalized, market participants’ practical needs are suitably addressed, relevant regulatory approvals are granted and all other necessary preparations are completed.
Both authorities did not give a formal launch date.
The program will operate alongside the already existing Stock Connect system that allows international and mainland investors their only direct access to each others’ markets.
