Hong Kong and China Strengthen Swap Connect Scheme

Hong Kong and Mainland China have recently announced a collaboration to improve their financial markets via the Swap Connect Scheme. This scheme allows investors in both countries to participate in each other’s interest rate swap markets. Essentially, the Swap Connect Scheme functions like a bridge to connect the two financial hubs. Traditionally, one could only make deals within one’s own market.

Now, with the Swap Connect Scheme, which offers more competitive rates and terms, one can do so in another- country. The People’s Bank of China, the Securities and Futures Commission, and the Hong Kong Monetary Authority have also joined forces to announce a series of improvements. These changes will boost mutual access between the two regions’ interest rate swap markets.

The Hong Kong government welcomed this initiative, recognising its potential to foster development within the derivatives markets of both locations. The enhancements target three key areas: expanding products offered through the Swap Connect Scheme, streamlining the program’s efficiency, and reducing participation costs. These improvements aim to address the risk management needs of domestic and foreign investors and, in turn, improve trading activity.

Second in the Series of Improvements

This is the second announcement from the China Securities Regulatory Commission’s measures, unveiled last month. The measures announced in advance focused on expanding access between the two capital markets and attracting leading Mainland companies to list on the Hong Kong Stock Exchange. The Hong Kong government will work closely with relevant Mainland institutions to ensure a smooth implementation of the Swap Connect Scheme enhancements.

This collaborative effort marks the Chinese central government’s commitment to the continued growth and development of Hong Kong’s financial market. Backed by Chinese policy backing and fostering closer economic integration, this initiative strengthens Hong Kong’s position as a key global financial hub.

Initially launched last year, this program is said to be a critical tool for overseas investors entering the Chinese market. Swap Connect allows global investors to hedge on Chinese bonds using interest-rate swaps. According to reports, the program has helped investors manage risk on a staggering US$553 billion of Chinese bond holdings. The ability to hedge risk on Chinese bonds via Swap Connect could encourage more significant overseas investment. The program is also seen as a positive development for mainland China’s financial derivatives market, promoting its growth and development. Experts further suggest that Swap Connect is accelerating the yuan’s internationalisation, China’s currency. By providing a more accessible and efficient platform for foreign investors, the program makes the yuan more attractive for global financial transactions. Overall, Swap Connect is a win-win for both Hong Kong and mainland China.