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Swap Connect Takes Off – Bond Connect Company Limited Facilitates the Further Opening-Up of China’s Derivatives Market

5 May 2023

The Inauguration of Swap Connect

The “Interim Measures for the Administration of Mutual Access between the Mainland and Hong Kong Interest Rate Swap Markets” announced on 28th April by the People’s Bank of China (PBoC) marks the official launch of Swap Connect. The China Foreign Exchange Trade System (CFETS) and Shanghai Clearing House (SHCH) have simultaneously introduced the trading and clearing rules of Northbound Swap Connect to showcase the operation mechanism of Swap Connect to the market. 

Swap Connect refers to an arrangement which will enable investors to participate in the financial derivatives markets in the Mainland and Hong Kong SAR through a connection between Infrastructure Institutions in both places. Northbound Trading will first commence at the initial stage, allowing investors from Hong Kong SAR and other countries and regions to participate in the Mainland interbank financial derivatives market through mutual access between Hong Kong SAR and Mainland Infrastructure Institutions in respect of trading, clearing and settlement.

Upon the 5th anniversary of Bond Connect’s launch and in light of promoting the mutual development of financial derivatives markets in Mainland China and Hong Kong SAR, the PBoC , Securities and Futures Commission (SFC) and Hong Kong Monetary Authority (HKMA) issued a joint announcement on 4 July 2022 regarding the collaboration to develop a mutual access scheme between the Hong Kong SAR and Mainland interest rate swap markets. Various financial infrastructure and related market institutions collaborated closely on market consultation, rulemaking, system development and other fronts in the subsequent months. These efforts were made to showcase Swap Connect as an innovation to the interconnectivity in infrastructures between derivatives markets and as another prominent example of the Mainland interbank market’s opening-up. 

In recent years, overseas investors have been continuously deepening their participation in China’s bond market. According to statistics published by the PBoC Shanghai Head Office as of the end of March 2023, a total of 1082 offshore institutional entities entered the market, of which 529 entered via CIBM Direct, 791 via Bond Connect and 238 via both channels. Foreign holdings of Chinese onshore bonds in the interbank market represented RMB 3.21 trillion, accounting for 2.5% of its total assets under custody. As more and more overseas investors participate in onshore cash bond market, their demands for RMB interest rate risk management tools are also soaring. The launch of Swap Connect will provide a broader range of interest rate risk hedging tools for overseas investors and offer greater depth and liquidity to the RMB interest rate derivatives market.

Bond Connect Company Limited Takes on a New Mission

Bond Connect Company Limited (BCCL) is a joint venture between CFETS and Hong Kong Exchanges and Clearing Limited (HKEX). It has been supporting Bond Connect trading related services and facilitating foreign investors’ participation in China’s interbank bond market since its establishment in 2017. In the process of furthering the opening-up of China’s capital markets, BCCL has gone from strength to strength in exploring and improving its connectivity mechanism and introducing new products and services. Through these efforts, it aims at facilitating overseas investors’ efficient participation in the China interbank bond market while maintaining the orderly progress of RMB internationalization.

With Swap Connect in full effect, BCCL will undertake the new mission of assisting CFETS in promoting Northbound Swap Connect to overseas investors and acting as the single point of contact to facilitate Northbound Swap Connect onboarding.

Tony Wang, General Manager of BCCL, expressed, “BCCL is honored to play an important role in the cross border innovation of Swap Connect. Without changing their existing trading and settlement practices, overseas investors can now enter the Mainland interest rate swap market in a convenient and secure manner through the connectivity between the Hong Kong SAR and the Mainland China’s market infrastructures. While serving the interbank market and being based in Hong Kong SAR, BCCL will continue to act as the bridge and services window of CFETS.”

Application to Swap Connect

Overseas investors, such as commercial banks, insurance companies, securities companies, fund management companies and other asset management institutions who comply with the China interbank bond market admission criteria prescribed in the PBoC Notice No. 3 [2016], PBoC Notice No. 202 [2015], and other relevant PBoC notices may apply for the Bond Connect to conduct trading in China interbank bond market.

Overseas investors who have participated in the China interbank bond market via Bond Connect or CIBM Direct can contact BCCL to submit Swap Connect application from now.

To enable qualified overseas investors’ efficient entry into China’s interbank derivatives market, applicants could submit required Northbound Swap Connect Investor Business Application Form to BCCL via E-Filing System for Swap Connect trading account opening. 
Swap Connect Application Procedures

1.      Approach an OTCC clearing member for a clearing account. If the investor is an OTCC clearing member, it can perform central clearing via OTCC directly.
2.      Contact recognized trading access platform(s).
3.      Application process:
a) Investor submits application forms to BCCL
b) BCCL account manager will conduct preliminary review and submit qualified application to CFETS
c) Upon CFETS’ feedback, BCCL sends Swap Connect CFETS ID to investor
For more information on Swap Connect, please feel free to visit the official website of BCCL or contact us directly via:
Email Address:
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