A joint access program for the interbank interest rate swap (IRS) markets in Hong Kong and the Chinese mainland has been announced by Hong Kong Exchanges and Clearing Limited (HKEX), China Foreign Exchange Trade System (CFETS), and Shanghai Clearing House (SHCH).
For participants on the Chinese mainland who want access to the Hong Kong derivatives market as well as for investors from Hong Kong and other countries, trading and clearing will be made available through the mutual access program known as Swap Connect.
The launch of Stock Connect and Bond Connect, two mutual access programs for trading in stocks and fixed income, respectively, between Hong Kong and Mainland China, will be followed by the launch of Swap Connect.
The infrastructure needed to support the launching of Swap Connect is being developed by CFETS and SHCH under a framework agreement signed by the clearing subsidiary of HKEX, OTC Clear.
Initial access to the interbank IRS market in Mainland China will be made possible by this for investors from Hong Kong and other countries without requiring them to change their current trading and settlement practices.
With the help of overseas third-party trading platforms that have been approved by the People’s Bank of China, the regulatory body for this market on the Chinese mainland, participants from Hong Kong and other countries will be able to access the interbank derivatives market on the mainland through the Swap Connect program, which will be run by CFETS.
The clearing link for this facility will be established in collaboration between OTC Clear and SHCH, with OTC Clear supporting clearing services for investors in Hong Kong and other countries and SHCH providing clearing for investors in mainland China.
The establishment of a central counterparty margin fund and assistance for daily margin management and settlement payments between the two clearing houses, this will lessen the risk of default.
Participants from Hong Kong and other nations will be able to access the interbank derivatives market on the mainland through the Swap Connect programme, which will be run by CFETS, with the aid of overseas third-party trading platforms that have been approved by the People’s Bank of China, the regulatory body for this market on the Chinese mainland.
OTC Clear and SHCH will work together to develop the clearing link for this facility, with OTC Clear providing clearing for investors in mainland China and other countries while SHCH supports clearing services for investors in Hong Kong and other countries.
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According to the authorities and infrastructure companies working on Swap Connect, the service will probably go live in around six months.
In November 2014, Stock Connect was introduced between the Shanghai and Hong Kong stock markets.
In 2016, it was expanded to include the Shenzhen exchange. In addition to giving Hong Kong and foreign investors easier access to Chinese A-shares listed on the mainland, this enables investors on the Chinese mainland to purchase Chinese and Hong Kong-based companies listed in Hong Kong.
Bond Connect was introduced in July 2017 to give foreign investors access to the China Interbank Bond Market in the north.
