Chinanews.com, September 15th. According to the People’s Bank of China website, in order to regulate the development of the Mainland and Hong Kong bond market interconnection southbound cooperation (hereinafter referred to as "Southbound Link"), to facilitate domestic bond market institutional investors (hereinafter referred to as domestic investment) (1) Orderly allocate global bonds to promote the steady realization of high-level two-way opening up of China’s bond market. According to the “People’s Bank of China Law of the People’s Republic of China” and other laws and regulations, the People’s Bank of China has recently issued a report on the development of southbound cooperation in the interconnection of the mainland and Hong Kong bond markets. Notice (hereinafter referred to as the notice).

　　The notice pointed out that the so-called "Southbound Link" refers to the mechanism arrangements for domestic investors to invest in bonds traded and circulated in the Hong Kong bond market through the interconnection of bond transactions, custody, and settlement through relevant basic service institutions in the Mainland and Hong Kong.

The “basic service organization” refers to the organization approved by the People’s Bank of China and the Hong Kong Monetary Authority to provide domestic and foreign investors with basic services such as bond registration, depository, custody, trading, settlement, and clearing, including both the Mainland and Hong Kong. Local bond market infrastructure institutions and custodian clearing banks.

　　The notice stated that "Southbound Link" complies with the current laws and regulations of the Mainland and Hong Kong, and related transaction settlement activities comply with the regulatory requirements and business rules of the place where the transaction settlement takes place.

Except as otherwise provided in this notice.

　　The notice clarified that domestic investors that meet the requirements of the People's Bank of China can invest in bonds through the "Southbound Link". The target bonds are all bonds issued overseas and traded in the Hong Kong bond market.

The counterparty is tentatively designated as a market maker designated by the Hong Kong Monetary Authority.

The scope of domestic investors is tentatively designated as primary dealers in some open market businesses approved by the People's Bank of China.

Qualified Domestic Institutional Investors (QDII) and Renminbi Qualified Domestic Institutional Investors (RQDII) can also conduct offshore bond investments through the "Southbound Link".

　　The notice stated that domestic electronic trading platforms approved by the People's Bank of China can establish connections with overseas trading platforms to provide trading services for "Southbound Trading".

　　The notice pointed out that a domestic bond registration and settlement institution recognized by the People’s Bank of China should open a nominee account with a bond registration and settlement institution in Hong Kong recognized by the Hong Kong Monetary Authority to record all holdings on behalf of domestic investors Bond balance.

The domestic custodian and clearing bank approved by the People's Bank of China shall establish a connection with the Hong Kong bond registration and clearing institution or the Hong Kong custodian bank to provide domestic investors with services such as bond custody and settlement.

　　The notice clarified that domestic investors can choose to custody their bond assets through domestic bond registration and settlement institutions or domestic custodian and clearing banks.

Domestic investors who choose domestic bond registration and settlement institutions to custodial bonds shall conclude transactions with counterparties through domestic electronic trading platforms, and handle the payment of funds for bond transactions through the RMB cross-border payment system.

　　Domestic investors can participate in the issuance and subscription of overseas bonds through the "Southbound Link".

Relevant basic service institutions in the Mainland and Hong Kong should establish and improve relevant mechanisms and arrangements, and do a good job of linking up.

　　Domestic investors can use RMB or foreign exchange to participate in the "Southbound Link", and the relevant funds can only be used for bond investment.

Domestic investors are not allowed to illegally arbitrage foreign exchange through "Southbound Link".

Domestic investors who use RMB to invest in foreign currency bonds can handle foreign exchange funds conversion and foreign exchange risk hedging services through the inter-bank foreign exchange market. If domestic investors no longer invest after the maturity or sale of the investment bonds, the relevant funds should be remitted to the country And convert it back to RMB.

　　The notice stated that the upper limit of the net outflow of "Southbound" cross-border funds does not exceed the annual total quota and daily quota.

At present, the annual total quota of "Southbound Link" is 500 billion yuan equivalent, and the daily quota is 20 billion yuan equivalent.

　　The notice requires that relevant basic service institutions in the Mainland and Hong Kong should truthfully, accurately, complete and timely record detailed data and information on bond transactions, custody, and settlement of domestic and foreign investors.

　　The Shanghai Headquarters of the People's Bank of China shall establish and improve the operation and monitoring mechanism of the "Southbound Link", and timely and accurately grasp the usage of the "Southbound Link" quota.

The relevant basic service institutions in the Mainland and Hong Kong, and domestic and foreign investors shall submit relevant data and information to the Shanghai Headquarters of the People's Bank of China in accordance with the relevant requirements of the transaction reporting system.

Relevant basic service institutions in the Mainland and domestic investors should fulfill their obligations to declare their balance of payments in accordance with the relevant regulations on the declaration of balance of payments statistics.

　　The notice also stated that the People’s Bank of China supervises and manages domestic investors’ participation in the “Southbound Link” in accordance with the law, and, in conjunction with the Hong Kong Monetary Authority, continues to improve the regulatory cooperation arrangements for the interconnection of the mainland and Hong Kong bond markets, and jointly safeguards cross-border domestic and foreign investors. The legitimate rights and interests of the investment.

　　The People's Bank of China, in conjunction with the foreign exchange administration department, supervises and manages the transfer of funds, the remittance of funds, and the reporting of information for domestic investors carrying out the "Southward Link" business in accordance with the law, to prevent domestic investors from illegally using the "Southbound Link" Activity.

　　Relevant basic service institutions in the Mainland should formulate relevant business rules or operating procedures for "Southbound Link" in accordance with this notice, and report to the People's Bank of China for approval before implementation.

　　The notice will come into effect on September 24, 2021.