China’s central bank issues guidance on interest rate ‘Swap Connect’ scheme

CHINA’S central bank on Friday (Apr 28) issued guidance on the interest rate Swap Connect scheme between Hong Kong and mainland China, which will take immediate effect.

The move marks another step in the opening up of China’s capital markets as it will allow foreign investors to access onshore interest rate derivatives and manage and hedge their China exposure.

Qualified foreign investors can participate in northbound domestic interbank financial derivatives trading, the People’s Bank of China (PBOC) said in a written statement.

The guideline was meant to regulate interest rate swap businesses between Hong Kong and mainland China, to “protect the legitimate rights and interests of domestic and foreign investors, and maintain the order of the interest rate swap market,” the PBOC said.

The central bank added that regulators would study extending the scheme’s southbound leg, which allows mainland investors to access the Hong Kong financial derivatives market, in due course.

Initially, interest rate swap products will be eligible under the northbound scheme, and quotation, trading and settlement will be denominated in yuan.

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The new scheme set the initial net daily trading quota for North Bound Connect at 20 billion yuan (S$3.9 billion), and the quota may be adjusted based on market conditions in future, according to the statement.

Swap Connect was first announced by regulators last July 2022 and was initially supposed to be launched six months after that. REUTERS