【Financial Str. Release】China to launch mainland-HK interest rate swap connect scheme

Photo taken on March 24, 2011 shows the office building of the People's Bank of China (PBOC) in Beijing, capital of China.

BEIJING, July 4 (Xinhua) -- Chinese central bank, the People's Bank of China (PBOC), announced Monday approval of three financial infrastructure institutions to develop a mutual access scheme linking the interest rate swap markets of Chinese mainland and the Hong Kong Special Administrative Region (HKSAR), reported Xinhua Finance Monday.

The three financial infrastructure institutions are China Foreign Exchange Trade System, Shanghai Clearing House and OTC Clearing Hong Kong Limited.

PBOC made a joint announcement with the Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority, saying that the Swap Connect refers to an arrangement to enable investors to participate in the financial derivatives markets in the Chinese mainland and HKSAR.

As the announcement says, northbound trading allowing overseas investors to take part in China's interbank financial derivatives market will kick off first and then southbound trading to facilitate Chinese mainland investors to participate in the financial derivatives market of HKSAR will be explored. 

In the initial stage, interest rate swaps will be eligible for northbound trading, with other products to be included in due course depending on market conditions.

Though the related infrastructure linkage, the Swap Connect will help investors at home and abroad conveniently complete Renminbi (RMB)-denominated interest rate swap transactions and centralized clearing, good for them to hedge interest rate risks and also conducive to enhance HKSAR's role as an international financial center. 

Recent years, demands for RMB interest rate risk management vehicles have been increasing among overseas investors alongside the widening opening-up of China's interbank bond market.

Six months later since Monday, the Swap Connect will be formally rolled out, according to the joint announcement. (Edited by Duan Jing with Xinhua Silk Road, duanjing@xinhua.org)