Sino-Singapore Jingwei Client, September 16th (Dong Wenbo) "Southward Link" is finally here!
The central bank announced on the evening of September 15 that the Mainland and Hong Kong bond market interconnection southbound cooperation (hereinafter referred to as "Southbound") will be officially launched on September 24.
The central bank introduced in the announcement that "Southbound Link" refers to the mechanism arrangement 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 industry pointed out that the start of "Southbound Link" means that a complete closed loop of my country's bond market opening to the outside world has been officially reached, and "interconnection" has been truly realized.
New latitude and longitude in the data map
How does it work?
In July 2017, when the "Northbound Link" was opened, comprehensively considering various factors, the "Southbound Link" was not opened simultaneously.
Over the past four years, the Central Bank and the Hong Kong Monetary Authority have maintained communication and jointly studied the feasible scheme of "Southbound Link".
On the evening of September 15th, the Central Bank and the Hong Kong Monetary Authority jointly issued an announcement stating that in order to promote the joint development of the mainland and Hong Kong bond markets, they decided to agree to the China Foreign Exchange Trading Center, China National Debt Depository and Clearing Co., Ltd., Interbank Market Clearing House Co., Ltd., Qualified domestic institutional investor custodian banks, cross-border interbank payment and clearing companies, Hong Kong Exchanges and Clearing Co., Ltd., Hong Kong Monetary Authority Debt Instruments Central Clearing System, Hong Kong Custodian Bank, etc. launch "Southbound Link",
September 2021 Go online on the 24th
.
According to the central bank, domestic investors who meet the requirements of the central bank can carry out bond investment through the "Southbound Link". The target bonds are all securities issued overseas and traded in the Hong Kong bond market.
What is the overall operating framework of "Southbound Link"?
In response to a reporter's question, the central bank said that at present, mainland financial institutions can independently "go global" to allocate global bonds.
The “
Southbound Link” did not break through the current policy framework between the Mainland and Hong Kong. The main purpose was to strengthen the cooperation of basic service institutions in the bond markets of the two places to provide a convenient channel for Mainland institutional investors to "go global" to allocate bonds
.
The investment scope of "Southbound Link" is bonds issued overseas and traded in the Hong Kong market.
Infancy, "South to pass" before the opening of share certificates to pay
easily.
Like "Northbound Link", "Southbound Link" also adopts the international nominal holder system arrangement.
Mainland bond registration and settlement institutions, custodian and clearing banks provide bond custody and settlement services for mainland investors by opening a nominal holder account in Hong Kong.
At this stage, among the institutions participating in the "Southbound Link",
mainland investors are tentatively designated as 41 banking financial institutions
(excluding non-bank financial institutions and rural financial institutions)
among the primary dealers of the central bank's 2020 open market business
. .
Qualified Domestic Institutional Investors (QDII) and Renminbi Qualified Domestic Institutional Investors (RQDII) can also conduct offshore bond investments through the "Southbound Link".
The counterparty of the transaction is tentatively designated as the "Southbound" market maker designated by the Hong Kong Monetary Authority.
Regarding the risk management of cross-border capital flows, the Central Bank pointed out that “Southbound Link” realizes closed-loop management of funds through the design of transactions, custody, settlement, exchange and other links, and strengthens penetrating supervision through transaction custody data reporting and other methods. And monitoring.
In terms of quota management, 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 central bank adjusts the annual total quota and daily quota of the "Southbound Link" based on the situation of cross-border capital flows.
Qualified domestic institutional investors (QDII) and renminbi qualified domestic institutional investors (RQDII) participating in the "Southbound Link" still abide by the current management regulations, and related cross-border capital outflows are not included in the statistics on the use of "Southbound Link" related quotas .
The Central Bank made it clear that domestic investors can independently choose to custody their bond assets through domestic bond registration and clearing institutions or domestic custodian and clearing banks; they can participate in the issuance and subscription of overseas bonds through the "Southbound Link"; they
can use RMB or foreign exchange to participate in the "Southbound Link" , The
relevant funds can only be used for bond investment.
The central bank also emphasized that
domestic investors are not allowed to illegally arbitrage foreign exchange through "Southbound Link"
.
Domestic investors using 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 shall be remitted back to China And convert it back to RMB.
Two-way interoperability of domestic and foreign bond markets
What does the launch of "Nanxiangtong" mean?
The central bank pointed out that, in accordance with the central decision and deployment, the opening of the “Southbound Link” at the appropriate time is conducive to improving the institutional arrangements for the two-way opening of my country’s bond market and further expanding the space for domestic investors to allocate assets in the international financial market; second, it is conducive to consolidation Hong Kong's position as a bridgehead and hub connecting the Mainland and the world market will help Hong Kong integrate into the overall development of the country and maintain Hong Kong's long-term prosperity and stability.
The Financial Secretary of the Hong Kong Special Administrative Region Government, Chen Maobo, stated on September 15 that the opening of "Southbound Link" will expand the product categories under the interconnection plan, and on the one hand, it will provide qualified domestic investors with effective channels for diversified asset allocation. It also brings huge opportunities to Hong Kong's financial industry.
The opening of southbound trading will further highlight Hong Kong's unique function of connecting mainland funds and various products in the international market.
It will not only enhance Hong Kong’s attractiveness as a bond issuance platform and increase the liquidity of bonds issued in Hong Kong, but also further help RMB internationalization. The process of transformation
.
According to Hong Kong’s "Economic Times" report, regarding the upcoming launch of "Southbound Link", Standard Chartered’s Asia CEO Hong Pizheng pointed out, "This once again shows the Chinese government’s determination to open up the financial market, and further strengthens Hong Kong’s role as a super market in the mainland and overseas markets. The important role of a contact person."
Reuters' Chinese website quoted Fidelity International fixed income fund manager Cheng Hao as saying that the launch of the "Southbound Link" marked the realization of two-way interoperability in the domestic and foreign bond markets. "Southbound Link" has become a convenient and efficient cross-border bond allocation channel.
Cheng Hao also stated that the opening of "Southbound Link" is conducive to domestic investors' deployment of overseas Chinese-funded bonds, especially Chinese-funded U.S. dollar bonds, which account for more than 90% of the total. There are major differences in distribution and other aspects, which have a large cross-border diversified configuration value.
CICC pointed out in the research report that the “Southbound connection” means that a complete closed-loop opening of my country’s bond market has been formally reached, and the “interconnection” has been truly realized.
CICC explained that the opening of "Northbound Link" has enabled more and more international investors to recognize and participate in the Chinese bond market. The opening of "Southbound Link" this time
signifies that the policy level is not only a one-way hope. The inflow of capital is also encouraging domestic capital to go out. To a certain extent, it dispels some investors’ inherent prejudice and concerns about China’s implementation of the so-called “cross-border capital flow control”, and
demonstrates the sincerity and confidence of China’s financial market opening up. Contribute to the further improvement of the international recognition of the renminbi and promote the internationalization of the renminbi.
In addition, the opening of "Southbound Link" is also conducive to digesting the domestic "excess" U.S. dollar. U.S. dollar liquidity has more exports, which can hedge the continuous net inflow of capital and financial account funds to a certain extent, and regulate exchange rate stability. effect.
It is worth noting that CICC also reminded that there is a short-selling mechanism for bonds traded in Hong Kong, that is, when the price is high, the bond is first borrowed and sold, and when the price is low, the bond is bought back from the market and returned to the brokerage.
Generally, shorting may occur under conditions such as the upward channel of interest rates and the credit risk impact of the sector/bond, and the shorting target is mostly individual bonds with relatively good liquidity.
However, due to the existence of a short-selling mechanism, the price of some bonds fluctuates greatly. For some bonds with better liquidity and more existing bonds, they may be shorted under negative events/sentiments, resulting in a rapid price drop in a short period of time. Investors need Make certain psychological expectations.
(Zhongxin Jingwei APP)
(The opinions in the article are for reference only and do not constitute investment advice. Investment is risky and you need to be cautious when entering the market.)
All rights reserved by Sino-Singapore Jingwei. Without written authorization, no unit or individual may reprint, extract and use it in other ways.