Enhancing Hong Kong's financial market infrastructure to maintain the long-term competitiveness of its financial sector remains a key focus of the Hong Kong Monetary Authority (HKMA). Over two years ago, I reported in the inSight article "Developing the CMU to reinforce Hong Kong’s status as an IFC" that the HKMA was in the process of upgrading the Central Moneymarkets Unit (CMU), with the vision of developing CMU into a major international central securities depository (ICSD) in Asia. Pursuant to this vision, CMU OmniClear Limited (CMU OmniClear) was established in October 2024 to carry out the operation of CMU and pursue new business development initiatives related to CMU on behalf of the HKMA with a more commercial approach starting from January 2025. Today, CMU OmniClear and the Hong Kong Exchanges and Clearing Limited (HKEX) signed a Memorandum of Understanding (MOU) to deepen their collaboration in enhancing the post-trade securities infrastructure of Hong Kong’s capital markets, marking another important milestone for CMU on its path to becoming a major ICSD in Asia.
At present, CMU OmniClear and HKEX are operating custodial platforms in Hong Kong for fixed income products (such as bonds) and equities respectively. The strategic cooperation between these two platforms paves the way for Hong Kong to establish a multi-asset class custodial platform in the longer run. Indeed, for CMU to develop into a competitive ICSD, it is crucial to continuously enhance its service coverage, ease of use and the user experience to provide market participants with more comprehensive and quality services. To achieve this, CMU OmniClear and HKEX will explore opportunities across the following three strategic pillars to enhance the post-trade securities infrastructure of Hong Kong’s capital markets:
1. Supporting the development of RMB internationalisation
Since the launch of the Northbound Bond Connect in 2017, over 830 international institutional investors from more than 70 countries and regions have registered to invest in the China Interbank Bond Market (CIBM) through this scheme1. More than 60% of overseas investor transactions in CIBM2 are traded through Bond Connect, and cleared and settled via CMU. The introduction of the Southbound Bond Connect in 2021 marked a significant milestone propelling the rapid expansion of the Hong Kong’s offshore Renminbi (RMB) bond market. The total offshore RMB issuances in CMU increased almost four-fold from RMB263 billion in 2021 to over RMB1 trillion in 2024. This remarkable growth underscores the mega trend of investing in RMB bonds.
We believe there is still significant potential for future growth in global demand for Mainland bonds. At present, there remains relatively limited scope for global investors to use their Mainland bond holdings as collateral in the international markets. Onshore and offshore bonds issued by the Chinese Government and policy banks now represent a pool of high-quality collateral totalling US$16.3 trillion3. If Mainland bonds can be accepted as collateral in more markets, investors can use these bonds as collateral for financing purposes, which will in turn lower their funding cost. This will strengthen the liquidity of Mainland bonds and attract even more global investors to participate in the market.
Therefore, we have been making proactive efforts in advancing the cause with various regulatory authorities in recent years, with initial efforts beginning in Hong Kong. In February 2024, the HKMA pioneered the inclusion of onshore bonds as eligible collateral under the RMB Liquidity Facility so that CMU members can use onshore bonds issued by the Ministry of Finance and policy banks held through Northbound Bond Connect in conducting repurchase (repo) transactions. This measure was further supported by the People's Bank of China (PBoC) in July 2024, allowing the use of these bonds by global investors as eligible collateral in meeting the margin requirements of HKEX’s OTC Clearing Hong Kong Limited under Swap Connect. Early this year, the PBoC further expanded the use of onshore bonds as collateral, enabling Northbound Bond Connect participants to use bonds held under Northbound Bond Connect as collateral to conduct offshore RMB bond repo business in Hong Kong. On the international front, we will continue to actively promote collaborations with various financial centres.
We believe that the cooperation between CMU OmniClear and HKEX will integrate the complementary strengths of each custodial platform, creating a synergistic effect that will accelerate the unlocking of the potential of Mainland bonds as collateral, whilst providing market participants with more agile tools for capital deployment and risk management. This will help promote the issuance and trading of offshore RMB bonds, further enhancing the attractiveness of Hong Kong’s offshore RMB capital market.
2. Stimulating in- and outbound investments
Hong Kong has been a long-standing super-connector between the Mainland and the world, both in facilitating global investors’ access to onshore markets, and Mainland enterprises and capital to go global. Mainland households have over US$21 trillion of savings in domestic bank deposits4. There is a growing need for more of these savings to be invested in global capital markets to diversify asset allocation. So far, Mainland investors have allocated over US$660 billion to stocks and bonds listed and traded offshore under the Qualified Domestic Institutional Investor (QDII) programme and through Stock and Bond Connect5. There is clearly huge growth potential for Mainland outbound investment.
To meet the demands of Mainland investors for global asset allocation, CMU has been expanding its global network, exploring greater connectivity with more central securities depositories (CSDs) to facilitate Mainland investors' investment and holdings of offshore securities. In recent months, the HKMA and CMU OmniClear have signed MOUs with the Monetary Authority of Macao, SIX6 and the Central Bank of the United Arab Emirates respectively, to deepen cooperative relationships and establish direct linkage services. In this regard, the direct linkage service with the Central Securities Depository System of Macao was launched successfully on 21 January this year.
Importantly, the demands of Mainland investors are not limited to fixed income products, but also equities. Therefore, while expanding its connectivity, CMU also needs to broaden its product offerings to develop into a CSD covering different asset classes.
By the end of 2024, the assets under custody of CMU reached an all-time high of HK$4.8 trillion. Looking forward, CMU OmniClear and HKEX will build on this MOU to jointly expand the asset classes and geographical coverage of Hong Kong’s CSDs. Furthermore, both parties will collaborate on outreach activities to attract more investors, and to encourage more bond issuance and lodgement activities in Hong Kong, thereby consolidating and enhancing Hong Kong's status as a bond issuance centre.
3. Enhancing user experience
Enhancing user experience is key to attracting more market participants. In view of this, a new user interface was launched in July 2023 to support CMU in expanding connectivity. In addition, modernisation of the core platform is underway to support future business growth of CMU.
To further enhance the user experience, CMU OmniClear and HKEX will explore establishing a common interface to facilitate more efficient management of fixed income and equity holdings by investors. In the longer run, both parties will also explore the feasibility of curating a multi-asset class custodial platform, leveraging advanced technologies to upgrade the platform to support settlement netting across asset classes, thereby enhancing settlement efficiency.
Without the full support and dedicated effort of stakeholders, it would be impossible for Hong Kong’s financial market infrastructure to have achieved all the major accomplishments since its inception in the 1990s. The MOU between CMU OmniClear and HKEX marks a major milestone in moving towards the vision of developing a major ICSD in Asia. Looking forward, we will continue to take full advantage of Hong Kong’s role as a trusted gateway connecting the Mainland and international capital markets and leverage on the unique advantage under the “One Country, Two Systems” arrangement to foster the continued development and innovation in Hong Kong’s financial markets, further reinforcing Hong Kong’s role as an international financial centre and a leading offshore RMB business hub.
Eddie Yue
Chief Executive
Hong Kong Monetary Authority
4 March 2025
1 Source: Bond Connect Company Limited.
2 Sources: China Foreign Exchange Trade System and Bond Connect Company Limited.
3 Source: State Administration of Foreign Exchange.
4 Source: J.P. Morgan.
5 Sources: CMU OmniClear, the Hong Kong Exchanges and Clearing Limited, State Administration of Foreign Exchange and HKMA staff estimates.
6 SIX is a global provider of financial information to provide and operate stable and efficient infrastructure for the Swiss and Spanish financial centres.
