China, Hong Kong enhance Swap Connect scheme in time for its 1st birthday, easing access to mainland interbank derivatives

Financial regulators in mainland China and Hong Kong rolled out enhancements to the Swap Connect scheme on Monday to further open up China’s financial markets and strengthen Hong Kong’s status as an international financial centre.

The People’s Bank of China, Hong Kong’s Securities and Futures Commission and the Hong Kong Monetary Authority announced three enhancements. First, Swap Connect will accept interest rate swap contracts with payment cycles based on the International Monetary Market (IMM) dates to “align with mainstream products traded globally and meet the diverse risk management needs of mainland and overseas investors”, according to a joint press release.

Second, ancillary services like compression and clearing of backdated swap contracts will be introduced to help participating institutions manage the notional amount outstanding, reduce capital costs and foster active trading.

Finally, the Swap Connect’s clearing houses in China and Hong Kong – namely the China Foreign Exchange Trade System, Shanghai Clearing House, and Hong Kong Exchanges and Clearing (HKEX) subsidiary OTC Clearing Hong Kong – will launch other system enhancements and incentive programmes to reduce investors’ participation costs.

“As the world’s first derivatives mutual market access programme, Swap Connect has proved very popular with Hong Kong and international investors, providing them access to mainland China’s interbank swaps market,” said Bonnie Chan Yiting, CEO of HKEX, the city’s bourse operator.

As of last month, 20 mainland dealers and 58 overseas investors had conducted more than 3,600 interest-rate swap transactions under the Swap Connect.