HKMA and SFC Endorse PBoC’s New Margin Collateral Measure for Northbound Swap Connect

The
Hong
Kong
Monetary
Authority
(HKMA)
and
the
Securities
and
Futures
Commission
(SFC)
have
expressed
their
support
for
the
People’s
Bank
of
China
(PBoC)’s
recent
announcement
aimed
at
offshore
investors.
Effective
from
July
9,
2024,
this
new
measure
allows
the
use
of
onshore
bonds
issued
by
the
Ministry
of
Finance
and
policy
banks
on
the
Mainland,
held
under
Northbound
Bond
Connect,
as
margin
collateral
for
Northbound
Swap
Connect
transactions,
according
to
the

Hong
Kong
Monetary
Authority.

Enhancing
Capital
Efficiency

The
new
initiative
is
expected
to
provide
Northbound
Swap
Connect
investors
with
an
additional
choice
of
non-cash
collateral.
This
move
aims
to
reduce
liquidity
costs
and
improve
capital
efficiency
for
investors.
Moreover,
it
is
anticipated
to
vitalize
offshore
investors’
onshore
bond
holdings,
thereby
enhancing
the
attractiveness
of
onshore
bonds.
The
measure
will
also
create
synergies
between
Bond
Connect
and
Swap
Connect,
further
invigorating
market
participation
in
the
Connect
Schemes.

Deepening
Financial
Cooperation

This
arrangement
follows
the
inclusion
of
onshore
bonds
in
the
list
of
eligible
collateral
for
the
HKMA’s
RMB
Liquidity
Facility
earlier
this
year
on
February
26.
It
is
seen
as
a
step
forward
in
the
collaborative
efforts
between
the
HKMA
and
the
PBoC
to
deepen
financial
cooperation
between
Hong
Kong
and
Mainland
China.
The
objective
is
to
promote
RMB
internationalization
in
a
steady,
orderly,
and
sound
manner.

Implementation
and
Future
Steps

According
to
the
HKMA,
both
the
HKMA
and
the
SFC
will
continue
to
guide
financial
infrastructure
institutions,
including
the
HKMA
Central
Moneymarkets
Unit
and
OTC
Clearing
Hong
Kong
Limited,
in
preparing
for
the
implementation
of
this
new
measure.
This
will
involve
promulgating
rules
for
the
provision
of
collateral
by
way
of
security
interest
or
title
transfer,
and
for
the
transfer
of
the
relevant
bonds.
Further
details
are
expected
to
be
announced
in
due
course.

Potential
Market
Impact

Analysts
suggest
that
this
measure
could
significantly
boost
the
attractiveness
of
onshore
bonds
to
offshore
investors,
potentially
leading
to
increased
market
participation
and
liquidity.
The
initiative
is
also
likely
to
bolster
confidence
in
the
stability
and
efficiency
of
the
Chinese
financial
markets,
aligning
with
broader
goals
of
integrating
Mainland
financial
markets
with
global
systems.

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source:
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