The Hong Kong Monetary Authority (HKMA) announced today (8 July) enhancements to the offshore RMB bond repurchase (repo) business (Note 1), to facilitate the participation of Northbound Bond Connect investors in repo business. In particular, the enhancements include:
- Supporting the rehypothecation of bond collaterals during the repo period (Note 2):
- The offshore RMB repo business has been well received by the market since its official launch on 10 February 2025. In this initial phase, the bond collaterals acquired by participating institutions are locked and managed by the Central Moneymarkets Unit (CMU) platform and cannot be re-used during the repo period. In consultation with relevant Mainland authorities and taking into account industry feedback, we will allow rehypothecation of bond collateral during the repo period, bringing this into alignment with international market practice. The enhancement will facilitate more efficient use of collaterals, reduce the financing costs for market participants, and enhance the efficiency of liquidity management.
- In particular, bond collaterals can be re-used during the repo period in four specific use cases: a) for re-use in offshore repo transactions; b) as collateral for the HKMA’s RMB Liquidity Facility; c) as margin collateral at OTC Clearing Hong Kong Limited (OTCC); and d) for cash bond trading through Northbound Bond Connect. Participating institutions shall follow relevant policies and operational rules for the respective use cases when re-using the collateral (for instance, if the collateral is re-used in a new offshore repo transaction during the repo period, the participating institution should follow the latest arrangements of offshore RMB repo business as set out further below).
- Supporting cross-currency repo (including HKD, USD and EUR):
- At present, offshore RMB repo can only be settled in RMB. With the enhancement, settlement in other currencies (including HKD, USD and EUR) will be supported, with a view to facilitating participating institutions’ multi-currency funding activities by collateralising onshore RMB bond holdings, enriching their liquidity management tools, and hence increasing the attractiveness of onshore bonds.
These two enhancement measures aim to adopt international market best practices and enhance operational efficiency. They will further expand the depth and breadth of the offshore repo market, improve the market-based mechanism for offshore RMB liquidity management, and broaden the use of onshore RMB bonds as collateral in the offshore market.
The above arrangements will be officially launched on 25 August 2025.
***
Latest Arrangements of Offshore RMB Repo Business
To facilitate the smooth implementation of the enhancement measures, the latest arrangements for offshore RMB repo transactions (including repo transactions conducted using bond collateral acquired through a repo transaction) are set out as follows:
- Participating Institutions:
All existing Northbound Bond Connect investors, including CMU members and offshore investors with CMU sub-accounts opened through Hong Kong custodian banks that are CMU members.
- Eligible Bonds:
Bonds held by participating institutions under Northbound Bond Connect, and bond collaterals acquired through offshore repo transactions, regardless of bond type.
- Market Maker Arrangement:
The 11 Primary Liquidity Providers designated by the HKMA (Note 3) will serve as market makers. Each repo transaction must involve at least one of these market makers as a counterparty.
- Transaction and Settlement Arrangements:
|
(a)
|
Master Agreement: Participants may choose their own repo agreement template (e.g., Global Master Repurchase Agreement (GMRA) or National Association of Financial Market Institutional Investors (NAFMII)’s Bond Repurchase Master Agreement, etc.).
|
|
(b)
|
Trading Arrangement: Transactions may be conducted:
- bilaterally over-the-counter;
- in the same manner as existing Northbound Bond Connect transactions, and via the linkage between the infrastructures in the onshore and offshore markets;
- through offshore electronic trading platforms; or
- through onshore electronic trading platform.
|
|
(c)
|
Settlement Arrangement: Settlement will be completed under the Repo Service by CMU. Settlement currencies include RMB, HKD, USD and EUR.
|
- Data Reporting:
- Market makers are required to report repo transaction data (Note 4) to the HKMA on the same day of the transaction for market monitoring purpose. The HKMA will further communicate with the market makers to finalise the reporting requirements and submission channels.
- The operational details for bond transfer and settlement will be announced by CMU separately. The HKMA will continue to closely monitor market conditions to ensure orderly market operations. The HKMA will also maintain communication with the industry and review and adjust the arrangements as appropriate to support the robust and sustainable development of offshore RMB business.
Hong Kong Monetary Authority
8 July 2025
Note 1: The HKMA announced the launch of offshore RMB bond repo business on 13 January 2025 (please refer to the HKMA press release). This measure was implemented on 10 February 2025.
Note 2: Operational details will be announced by CMU later. Currently, the rehypothecation of bond collateral is only applicable to repo transactions settled in the Delivery versus Payment model. The timeline for CMU’s tri-party repo service to support the rehypothecation of bond collateral will be notified separately in due course.
Note 3: Including 1) Agricultural Bank of China Limited, 2) Bank of China (Hong Kong) Limited, 3) Bank of Communications Co., Ltd., 4) BNP Paribas, 5) China CITIC Bank International Limited, 6) China Construction Bank (Asia) Corporation Limited, 7) Citibank, N.A., 8) Hang Seng Bank Limited, 9) The Hongkong and Shanghai Banking Corporation Limited, 10) Industrial and Commercial Bank of China (Asia) Limited and 11) Standard Chartered Bank (Hong Kong) Limited.
Note 4: The specific information to be reported includes: names of the trading institutions (including both the repo party and the reverse repo party), total amount of funds borrowed by the repo party, bond name, bond code, repo term, total face value, repo rate, transaction/first settlement date, settlement amount, trading platform/means, default-related information etc.
