Swap Connect enhancements to advance high-quality opening-up of China’s financial markets

Swap Connect, the mutual access between Mainland China and Hong Kong interest rate swap markets, was launched in May 2023 to advance the opening-up of China’s financial markets. Since its launch, Swap Connect has operated smoothly, attracting active participation from Mainland and overseas investors. By April 2024, more than 3,600 interest rate swap transactions were conducted, totalling approximately RMB1.77 trillion in notional amount. The average daily turnover has increased significantly, from around RMB3 billion in the first month to over RMB12 billion in April 2024. These developments have provided investors with a convenient and efficient tool for managing their RMB asset allocation and risk. To further promote the coordinated development of financial derivatives markets and facilitate high-quality opening-up, the People’s Bank of China, the Securities and Futures Commission, and the Hong Kong Monetary Authority have planned enhancements for Swap Connect. These include accepting interest rate swap contracts based on international standards and introducing ancillary services such as compression and clearing of backdated swap contracts. System enhancements and incentive programs will also be implemented to reduce participation costs for Mainland and overseas investors. The regulators aim to guide financial market infrastructure institutions in both Mainland China and Hong Kong to extend business collaboration under Swap Connect, strengthening the operational arrangements and facilitating the steady opening-up of China’s financial markets while enhancing Hong Kong’s position as an international financial center. Resources: https://www.hkma.gov.hk/eng/news-and-media/press-releases/2024/05/20240513-3/