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New swap market connectivity between Hong Kong and China

New swap market connectivity between Hong Kong and China

New swap market connectivity between Hong Kong and China

China Opens Interbank Bond Market for Interest Rate Swaps to Foreign Institutional Investors

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  • New programme to facilitate mutual access between the Hong Kong and mainland China interest rate swap markets.
  • The new arrangement, a so-called swap connect,
  • Initially allow offshore investors in Hong Kong to access the mainland interbank financial derivatives market.
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Three days after the country commemorated the 25th anniversary of Hong Kong’s return to China, financial officials said on Monday that they will establish a new programme to facilitate mutual access between the Hong Kong and mainland China interest rate swap markets.

According to a statement from the People’s Bank of China, the new arrangement, a so-called swap connect, will initially allow offshore investors in Hong Kong to access the mainland interbank financial derivatives market, and will “in due course” explore how to allow mainland investors to access Hong Kong’s derivatives market.

In six months, the first phase of the programme will be implemented.

According to the PBoC, mainland investors engaged in interbank financial derivatives transactions of Rmb21,100 billion in 2021.

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“Swap Connect is another major milestone in deepening connectivity between Mainland China and international markets,” said Nicolas Aguzin, chief executive of Hong Kong Exchanges and Clearing, which operates the city’s stock exchange.

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“Just as Stock Connect and Bond Connect have changed the DNA of equity and fixed-income markets, Swap Connect will do the same for the interbank derivatives market,” he added in an emailed statement.

China’s central bank increased the scale of a currency swap with the Hong Kong Monetary Authority from Rmb500 billion to Rmb800 billion on Monday. The decision will offer Hong Kong’s offshore renminbi market with more steady and long-term liquidity assistance, according to the PBoC.

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