To promote the development of financial derivatives markets in both Mainland China and Hong Kong, the People’s Bank of China, the Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority have agreed that China Foreign Exchange Trade System (National Interbank Funding Center) and Shanghai Clearing House (collectively “Mainland Infrastructure Institutions”), together with OTC Clearing Hong Kong Limited (“Hong Kong Infrastructure Institution”), will collaborate to develop mutual access between the Hong Kong and Mainland interest rate swap markets (Swap Connect). It is hereby announced that:
- Swap Connect refers to an arrangement which will enable investors to participate in the financial derivatives markets in the Mainland and Hong Kong through a connection between Infrastructure Institutions in both places. At the initial stage, Northbound Trading will commence first, allowing investors from Hong Kong and other countries and regions (Overseas Investors) to participate in the Mainland interbank financial derivatives market through mutual access between Hong Kong and Mainland Infrastructure Institutions in respect of trading, clearing and settlement. Southbound Trading, which allows Mainland investors to access the Hong Kong financial derivatives market through mutual access between Infrastructure Institutions in both places, will be explored in due course.
- Swap Connect is another important measure of the Central Government to support the development of Hong Kong and enhance Mainland-Hong Kong cooperation. It is conducive to the consolidation and enhancement of Hong Kong’s status as an international financial centre, the maintenance of its long-term stability and prosperity, the steady and progressive opening-up of the Mainland financial derivatives market and the diversification of market access channels for Overseas Investors.
- Swap Connect is subject to the relevant laws and regulations of both markets. Northbound Trading will follow the existing policy framework for the opening-up of the Mainland interbank financial derivatives market and take into account international practices. This will facilitate Overseas Investors to trade in the Mainland interbank financial derivatives market and hedge their risks. Initially, interest rate swaps will be eligible with other products to be included in due course depending on market conditions.
- The regulators of the financial derivatives markets in Hong Kong and the Mainland will respectively take all necessary measures to establish effective mechanisms under Swap Connect to handle any misconduct in a timely manner for the purpose of investor protection on both sides. The regulators of the financial derivatives markets in Hong Kong and the Mainland will enter into a memorandum of understanding on supervisory cooperation to establish regulatory collaboration arrangements and liaison mechanisms so as to maintain the stability, fairness and orderly trading of financial markets.
- Hong Kong and Mainland Infrastructure Institutions should actively take forward the development work for Swap Connect in an orderly manner and with prudent risk management. Swap Connect will be launched after the relevant rules have been finalised, system development has been completed, the practical needs of market participants have been addressed, the relevant regulatory approvals have been granted and all other necessary preparations have been made.
- The official launch of Swap Connect will take place after six months from the date of this announcement.
4 July 2022