Interim measures released for Chinese mainland-HK interest rate swap market collaboration

The People's Bank of China (PBOC) on Friday released a tentative method to manage interest rate swap market cooperation between the Chinese mainland and Hong Kong.

The cooperation agreement, known as Swap Connect, was officially announced in July 2022 by the PBOC, the Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority. It will enable investors to participate in financial derivatives markets on the mainland and in Hong Kong by connecting infrastructure institutions in both places.

The interim procedures apply to northbound trading. Overseas investors can participate in the mainland interbank financial derivatives market through mutual access between Hong Kong and mainland infrastructure institutions related to trading, clearing and settlement.

The initial market-wide net daily trading limit will be 20 billion yuan (US$2.89 billion), and the clearing limit will be 4 billion yuan.

Sources within the PBOC said that the central bank will increase investment varieties in a timely manner, adjust trading and clearing limits, optimize trading and clearing arrangements, and provide more convenient and efficient risk management tools for overseas investors based on the development of the market.

Regulating authorities in both locations will take different factors into account and expand the cooperation to southbound trading in due time and under the principles of controllable risk, reciprocity and mutual benefits.