Hong Kong (Reuters) -After six months, China and Hong Kong will start a new programme called “Swap Connect.” This will give both countries access to trading interest rate swaps, which will help the financial derivatives markets. China and Hong Kong have also improved a separate currency swap agreement.
The move is the latest attempt to connect China’s markets with those in other countries. It was announced on the same day that China and Hong Kong launched ETF Connect. It follows other “connect” programmes that made it easier for people to invest in stocks and bonds across borders.
The CEO of the Hong Kong Exchange and Clearing Limited (HKEX), Nicolas Aguzin, said on Monday that “Swap Connect is another major step in making it easier for mainland China to connect to international markets.”
“Stock Connect and Bond Connect have changed the very nature of equity and fixed-income markets.” Swap Connect will do the same for the interbank derivatives market. “
The plan will help China’s capital markets grow even more and give international investors a simple and easy way to manage their exposure to China, he said.
In a separate statement on Monday, the People’s Bank of China said that it had changed a currency swap facility with Hong Kong from a temporary arrangement to a permanent one. This was its first permanent swap agreement, and it increased the size of the facility from 500 billion yuan to 800 billion yuan, which is worth $119.40 billion.
Chinese and Hong Kong financial regulators said in a joint statement that northbound Swap Connect trading, which lets investors from outside of China take part in China’s interbank financial derivatives market, will start first.
Southbound trading, which lets investors from the mainland get into the Hong Kong financial derivatives market, will be looked into when the time is right.
The plan was started a few days after the 25th anniversary of when Hong Kong became part of China. According to the statement, it is “another important measure of the central government to support the development of Hong Kong and improve cooperation between the mainland and Hong Kong.”
“It helps Hong Kong’s position as an international financial centre to grow and become stronger.”
At first, only interest rate swaps will be eligible for the scheme. Over time, and depending on how the market is doing, other products may be added.
It said, “The official launch of Swap Connect will happen six months after this announcement.”
The People’s Bank of China, the Hong Kong Securities and Futures Commission, and the Hong Kong Monetary Authority all put out the statement at the same time.
