China, HK to launch rate ‘Swap Connect’ toward financial integration

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HONG KONG — China and Hong Kong will launch “Swap Connect” after six months, allowing mutual access to interest rate swap trading initially, to promote financial derivatives markets on both sides, regulators said on Monday.

The move, announced on the same day China and Hong Kong launched ETF Connect, and came after similar schemes facilitating cross-border stock and bond investments, represents the latest efforts toward financial integration.

“Swap Connect is another major milestone in deepening connectivity between mainland China and international markets,” Nicolas Aguzin, chief executive of the Hong Kong Exchange and Clearing Limited (HKEX), said on Monday.

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“Just as Stock Connect and Bond Connect have changed the DNA of equity and fixed-income markets, Swap Connect will do the same for the interbank derivatives market.”

The scheme will support the further development of China’s capital markets, and give international investors an accessible and convenient way to manage their China exposure, he added.

Initially, northbound trading will commence first, allowing overseas investors to participate in China’s interbank financial derivatives market, China and Hong Kong financial regulators said in a joint statement.

Southbound Trading, which allows mainland investors to access the Hong Kong financial derivatives market, will be explored in due course.

The scheme, launched days after the 25th anniversary of the handover of Hong Kong to Chinese rule, “is another important measure of the central government to support the development of Hong Kong and enhance mainland-Hong Kong cooperation,” according to the statement.

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“It is conducive to the consolidation and enhancement of Hong Kong’s status as an international financial center.”

Initially, interest rate swaps will be eligible under the scheme, with other products to be included in due course depending on market conditions, the statement said, adding the official launch of Swap Connect will take place after six months.

The statement was jointly published by the People’s Bank of China, the Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority. (Reporting by Alun John and Selena Li; Additional reporting by Samuel Shen; Editing by Kim Coghill and Jacqueline Wong)

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