On Jan. 24, HK Treasury announced measures for mutual access.
HK Treasury, HKMA welcomed CHI CB's measures to enhance financial cooperation between Mainland and HK, to increase mutual access between the financial markets.
Cater to international investors' liquidity management needs in Mainland bond market.
Follows MAC MA, HKMA Jan. 2024 revised details for pilot scheme, see #186159.
Also follows HK Treasury Jan. 2024 held 17th Asian Financial Forum, see #198951.
Measures
The measures address cross-boundary financial service demands, cross-boundary financing services for residents and businesses in both Mainland and Hong Kong.
Key measures include expanding of eligible collateral for the Renminbi liquidity facility, and opening up of the onshore repo market to foreign institutional investors.
As well as revising the cross-boundary wealth management connect pilot scheme.
Remittance facilitation, cross-boundary credit referencing, widening pilots of e-CNY.
Onshore Bonds as Collateral
CHI CB and HKMA introduced new measures to enhance the openness of the Chinese bond market and support Hong Kong's role as an international financial centre.
These measures involve including Mainland China's RMB government bonds and policy financial bonds in list of eligible collateral for RMB liquidity facility managed by HKMA.
This marks first time onshore bonds are recognized as collateral in offshore markets.
Enhances the appeal of the Chinese bond market, establishes a foundation for global acceptance of domestic bonds as eligible collateral, promotes RMB internationalization.
Eligible entities include CHI GVT, and policy banks, such as Agricultural Development Bank of China, China Development Bank, and Export and Import Bank of China.
The amendments are effective from Feb. 26, 2024.
Jul. 2024 Margin Collateral
On Jul. 9, 2024, HKMA, HK SFC welcomed CHI CB's announcement to support offshore investors to use onshore bonds issued by CHI GVT and policy banks in China and held under Northbound Bond Connect as margin collateral for Northbound Swap Connect.
This will provide Northbound Swap Connect investors with the additional choice of non-cash collateral, reducing their liquidity cost and improving capital efficiency.
HKMA, HK SFC will continue to provide guidance to financial infrastructure institutions to take forward preparatory work, like promulgating rules for provision of collateral by way of security interest or title transfer, as well as for transfer of relevant bonds.
Dec. 2024 HKEX Scope Expanded
On Dec. 16, 2024, HKEX said OTC Clear will allow offshore investors to use Chinese government bonds and policy bank bonds held via Bond Connect as collateral.
Can be used to cover initial margin requirements for Northbound Swap Connect.
This enhancement strengthens synergies between the Bond Connect and Swap Connect programs, providing greater flexibility and improved capital efficiency.
Helps vitalize international investors' bond holdings in the China interbank bond market and promote internationalization of RMB; operational requirements to be announced.
The arrangement will be effective from Jan. 13, 2025.
Dec. 18, 2024 HKEX Rules Revised
On Dec. 18, 2024, HKEX said HK SFC approved amendments to the Clearing rules and clearing procedures of OTC Clearing Hong Kong Limited (hereafter, OTC Clear).
Allows OTC Clear to accept bonds traded via Bond Connect in the China interbank bond market, issued by the CHI GVT or policy banks, as eligible non-cash collateral.
HK SFC approved amendments to General rules of HK Securities Clearing Company (HKSCC) to enable HKSCC to act as a liquidation agent for affiliates clearing houses.
These amendments pertain to eligible collateral, specifically bonds traded via Bond Connect in the China Interbank Bond Market, issued by the CHI GVT or policy banks.
Both sets of amendments, in respective appendices, come into effect Jan. 13, 2025.
