China News Service, July 4th. On the morning of the 4th, the central bank's website released two major news, carrying out the interconnection and cooperation between Hong Kong and the mainland interest rate swap market, signing a standing swap agreement with the Hong Kong Monetary Authority and expanding the scale.
Victoria Harbour, Hong Kong.
Photo by China News Agency reporter Zhang Wei
In order to implement the overall strategic deployment of the CPC Central Committee and the State Council on steadily advancing the opening up of my country's financial market and promote the common development of the financial derivatives markets in the Mainland and Hong Kong, on July 4, 2022, the People's Bank of China and the Hong Kong Securities and Futures Commission (hereinafter The Hong Kong Securities and Futures Commission) and the Hong Kong Monetary Authority (hereinafter referred to as the Hong Kong Monetary Authority) issued a joint announcement to carry out the interconnection and cooperation of the interest rate swap market between Hong Kong and the Mainland (hereinafter referred to as the "Swap Connect").
In addition, with the approval of the State Council, the People's Bank of China and the Hong Kong Monetary Authority recently signed a standing swap agreement to upgrade the currency swap arrangement established by the two parties since 2009 to a standing swap arrangement. 500 billion yuan/590 billion Hong Kong dollars was expanded to 800 billion yuan/940 billion Hong Kong dollars.
China Foreign Exchange Trade System, Shanghai Clearing House and Hong Kong Stock Exchange join hands with "Swap Connect"
What is the background of the launch of "Swap Link"?
What are the positives?
What are the considerations and measures for risk prevention?
... In response to these questions, the central bank responded to reporters' questions →
Picture from the central bank website
Q: What is the background of the launch of "Swap Link"?
A: In recent years, my country's inter-bank bond market has been increasingly opened to the outside world. Especially since 2017, the launch of "Bond Connect" from north to south has become an important milestone in the opening up of China's financial market.
In the whole year of 2021, foreign investors reached RMB 11.47 trillion in bond transactions.
By the end of 2021, the scale of RMB bonds held by foreign investors will reach 4 trillion yuan, accounting for about 3.5% of the total custody of the entire market.
As foreign investors' debt holdings expand and their trading activity increases, their demand for using derivatives to manage interest rate risk continues to increase.
From the perspective of the inter-bank derivatives market, since its launch in the inter-bank market in 2006, RMB interest rate swaps have been the main product. The annual turnover is 21.1 trillion yuan.
In order to further facilitate the participation of foreign investors in derivatives transactions such as inter-bank interest rate swaps, the People's Bank of China has continued to promote the steady opening of the inter-bank interest rate derivatives market. The financial market infrastructure connection method allows foreign investors to participate in the domestic RMB interest rate swap market through the interconnection of domestic and overseas electronic trading platforms and central counterparty clearing institutions.
Q: What are the positive meanings of launching the "Swap Link"?
A: First, it is helpful for foreign investors to manage interest rate risk.
The launch of "Swap Connect" can facilitate foreign investors to use interest rate swaps to manage risks, reduce the impact of interest rate fluctuations on the value of bonds they hold, smooth cross-border capital flows, and further promote the internationalization of the RMB.
Second, it is conducive to promoting the development of the domestic interest rate derivatives market.
After the launch of the "Swap Connect", overseas institutions have brought about an increase in differentiated demand, supplemented by the advantages of efficient electronic transactions and closely connected transaction clearing links, which will help improve market liquidity and promote the further development of the inter-bank interest rate derivatives market. develop and form a virtuous circle.
Third, it will help consolidate Hong Kong's status as an international financial center.
As an important measure for the opening up of my country's financial derivatives market, the launch of "Swap Connect" is a concrete implementation of the "14th Five-Year Plan" on strengthening the functions of Hong Kong's international asset management center and risk management center, which is conducive to enhancing Hong Kong's role as an international financial The attractiveness of the center will deepen the cooperation between the mainland and Hong Kong financial markets.
Q: What innovations has the "Swap Link" carried out under the current framework of the inter-bank derivatives market?
A: On the basis of adhering to the current development path of the inter-bank derivatives market, the “Swap Connect” fully draws on the mature experience and overall framework of the bond market’s opening to the outside world. Counterparty clearing optimizes the existing process and improves the efficiency of transaction clearing.
Under the "Swap Connect", domestic and foreign investors can conduct transactions through the connection of relevant electronic trading platforms without changing their trading habits.
At the same time, "Swap Connect" innovated the interconnection model of derivatives clearing institutions, and two central counterparties jointly provided domestic and foreign investors with centralized clearing services for RMB interest rate swaps.
Domestic and foreign investors can conveniently complete transactions and centralized clearing of RMB interest rate swaps on the premise of complying with the laws and regulations of the two markets.
Q: What are the considerations and measures for risk prevention in the "Swap Connect" business?
A: Effective risk prevention is the basis for the high-quality development of the financial derivatives market, and it is also the core principle we adhere to in promoting the "Swap Connect" work.
Under the "Swap Link", we mainly take the following measures:
The first is to ensure transaction order and control overall market risks.
"Swap Link" adopts the trading model of quotation institutions to play the role of quotation institutions in stabilizing the market.
With reference to the Shanghai-Shenzhen-Hong Kong Stock Connect mechanism, the total amount management will be implemented initially to prevent market risks while meeting the risk management needs of investors.
The second is to strengthen the risk management arrangements between the financial market infrastructures of the two places.
Comprehensively consider the actual situation of international financial derivatives trading, clearing and settlement, risk management and other aspects, combine electronic trading with central counterparty clearing, formulate stable and reasonable system connection arrangements, and ensure that the "Swap Connect" business is strictly complied with In accordance with the principle of macro-prudence, risk control measures shall be taken at all levels and at various levels, focusing on preventing cross-market risk spillovers and weaving a protective net.
The third is to deepen regulatory cooperation.
The People's Bank of China will maintain close communication with the Hong Kong Securities Regulatory Commission, the Hong Kong Monetary Authority and other departments, sign a memorandum of supervision cooperation, and further cooperate closely in information sharing and emergency response.
Q: Is there a specific timetable for the implementation of "Swap Link"?
A: The "Swap Connect" will continue to advance under the overall planning and deployment of my country's financial market opening to the outside world.
At present, the People's Bank of China will work with the Hong Kong Securities Regulatory Commission, the Hong Kong Monetary Authority and other departments to formulate systems and measures, strengthen regulatory cooperation and information sharing, guide relevant financial market infrastructure to make preparations for rules, business, technology, etc., and strengthen market communication and cultivation. , to guide market members to do pre-transaction preparations, and the project will be launched after 6 months.
Hong Kong fishing boats parade in Victoria Harbour to celebrate the return of Hong Kong.
Photo by China News Agency reporter Li Zhihua
People's Bank of China and Hong Kong Monetary Authority sign standing swap agreement and expand
With the approval of the State Council, the People's Bank of China and the Hong Kong Monetary Authority recently signed a standing swap agreement to upgrade the currency swap arrangement established by the two parties since 2009 to a standing swap arrangement. RMB/HKD 590 billion was expanded to RMB 800 billion/HKD 940 billion to further deepen the financial cooperation between the Mainland and Hong Kong, better support the construction of Hong Kong’s international financial center, and promote the steady development of Hong Kong’s offshore RMB market.
What are the main contents of the standing swap agreement?
What are the main considerations?
What's the significance?
The relevant person in charge of the People's Bank of China answered questions from reporters on relevant issues.
What are the main contents of the RMB/HKD standing swap agreement between the People's Bank of China and the Hong Kong Monetary Authority?
Recently, the People's Bank of China and the Hong Kong Monetary Authority signed a RMB/HKD standing swap agreement, upgrading the currency swap arrangement established by the two parties since 2009 to a standing swap arrangement, with the swap scale from the original RMB 500 billion/RMB 590 billion. The Hong Kong dollar was expanded to RMB 800 billion/HKD 940 billion.
Up to now, the People's Bank of China has signed bilateral local currency swap agreements with central banks or monetary authorities in 40 countries and regions. This is the first time the People's Bank of China has signed a standing swap agreement.
"Standing" mainly means that the agreement is valid for a long time and does not need to be renewed regularly. At the same time, the exchange process will be further optimized, and the use of funds will be more convenient.
What are the main considerations for the signing of the standing swap agreement between the PBOC and the HKMA?
The People's Bank of China and the Hong Kong Monetary Authority signed a standing swap agreement mainly to meet the needs of in-depth financial cooperation and development between the Mainland and Hong Kong.
In recent years, the financial cooperation between the Mainland and Hong Kong has been deepened. The capital market interconnection mechanisms such as Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, Bond Connect, Fund Mutual Recognition, and Cross-border Wealth Management Connect have continued to advance. Hong Kong's RMB offshore market has developed steadily. Hong Kong has become a The most important clearing center, product center and capital center for offshore RMB.
The Hong Kong Monetary Authority has always been the main swap counterparty of the People's Bank of China. Upgrading the original currency swap to a standing swap arrangement is in line with the inherent requirement of deepening financial cooperation between the Mainland and Hong Kong, as well as the inherent requirement of the opening-up and development of the financial market.
Internationally, there are similar standing swap arrangements between central banks in many economies.
What is the significance of the signing of the standing swap agreement between the People's Bank of China and the Hong Kong Monetary Authority?
The establishment of a standing swap arrangement between the People's Bank of China and the Hong Kong Monetary Authority and the appropriate expansion of the scale of swap funds can provide the Hong Kong market with more stable and long-term liquidity support, which is conducive to stabilizing market expectations and enhancing the market's endogenous development momentum. Give full play to the function of Hong Kong's offshore RMB business hub.
This year marks the 25th anniversary of Hong Kong's return to the motherland. The signing of the agreement will help consolidate Hong Kong's status as an international financial center and promote the long-term prosperity and development of Hong Kong's financial industry.
(Zhongxin Finance)