Interest rate swap connect system launched between Chinese mainland, Hong Kong as nation expands financial opening-up
Published: May 15, 2023 11:54 AM Updated: May 15, 2023 11:49 AM
A snapshot of Hong Kong Photo: VCG

A snapshot of Hong Kong Photo: VCG

A much-expected program to allow mutual access to interest rate swap markets between the Hong Kong Special Administrative Region (HKSAR) and the Chinese mainland started on Monday, marking a milestone in the opening-up of the mainland's bond and interbank financial derivatives markets.

The Northbound Trading of Swap Connect provides a convenient and secure channel for international investors to trade interest rate swap products in the mainland via a link regime between institutions in Hong Kong and the mainland. It aims to facilitate global investors' management of interest rate risks arising from their holding of mainland bonds.

According to the People's Bank of China, the initial net daily trading quota for Northbound Swap Connect is set at 20 billion yuan ($2.9 billion).

"The launch of swap connect is another important milestone in the financial cooperation between Hong Kong and the mainland," HKSAR Chief Executive John Lee Ka-chiu said in a speech at its launch on Monday.

While providing more investment and risk management tools for international investors, the program will strengthen Hong Kong's role as the world's largest offshore yuan hub and international risk management center, he said.

Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, said, the program will create favorable conditions for global investors to increase their participation in the onshore bond market, and carries special significance for enhancing the recognition of, and confidence in, yuan bonds across the international market.

Standard Chartered Bank said in a press release that a number of its branches in the mainland, Hong Kong and London are participating in the trading of the Northbound Trading of Swap Connect.

The program will reinforce the foundation for China's financial opening in terms of product supply, provide more improved and convenient risk management tools for overseas investors to participate in China's bond market and strengthen their confidence of in-depth participation of China's bond and financial derivatives markets, Yang Jing, head of Financial Markets for Standard Chartered Bank (China) Co was quoted as saying.

Since the Shanghai-Hong Kong Stock Connect was officially launched in November 2014, the connect program and integrated development between Hong Kong and the mainland has yielded tangible results. In March, Hong Kong implemented a new Hong Kong dollar-yuan dual counter model as part of its domestic securities market.

Hong Kong's economic recovery is picking up momentum following the border reopening with the mainland. Hong Kong's GDP grew by 2.7 percent year-on-year in the first quarter of 2023, ending four consecutive quarters of decline, data released by Hong Kong government showed.