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Hong Kong Exchanges & Clearing facilitates cross-border trading of key interest rate derivatives.
Offshore institutional investors in China’s bond market can now use China Government Bonds and Policy Bank Bonds held via Bond Connect as collateral for Northbound Swap Connect trades.
Northbound Swap Connect, a link between Hong Kong and Mainland China’s interbank interest rate swap market, was launched by Hong Kong Exchanges and Clearing Ltd. (HKEX) to facilitate cross-border trading of interest rate derivatives.
OTC Clearing Hong Kong Ltd. (OTC Clear), HKEX’s clearing subsidiary, announced that this new collateral option will be available from 13 January 2025. Investors will be able to use the approved bonds to meet initial margin requirements for Northbound Swap Connect, which has seen participation from 71 overseas institutions.
Officials are betting that the addition of these bonds as collateral will provide a boost to investors’ capital efficiency as well as unlock the value of bond holdings in the China Interbank Bond Market. It also aims to further China’s broader goal of improving RMB “internationalization.”
Swap Connect has gained significant traction since its launch, with average daily turnover climbing to RMB 18.2 billion in November 2024, up from RMB 3 billion in May 2023.
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