Hong Kong securities watchdog highlighted three priorities in developing the fixed income and currency markets in the city as global shifts are increasing the demand for diversification and yuan assets.
They include developing an FIC trading platform, expanding the use of fixed income as collateral, and providing more risk management tools, said Julia Leung Fung-yee, chief executive of the Securities and Futures Commission.
Leung said at the Hong Kong FIC & Bond Connect Summit on Tuesday that approximately 3.9 billion yuan of onshore treasury bonds are already used as collateral after the People's Bank of China allowed such bonds held by international investors via Bond Connect to be used as collateral at Hong Kong Exchanges and Clearing's (0388) clearing houses—accounting for 17 percent of total margin in just over a year.
The SFC is in discussion with the PBOC to include the interbank seven-day fixing depositary institutions repo rate as a reference rate for the Swap Connect, targeting a launch by the fourth quarter, she said.
This would introduce more hedging instruments for market participants to better manage their interest rate risk of yuan-denominated positions, Leung noted.
To enhance secondary market liquidity, she pointed out the need to further develop Hong Kong’s repo market and introduce repo clearing through a central counterparty, which will become part of a resilient and robust FIC ecosystem.
The five-year Chinese government bond futures contract will be launched on HKEX next month as a transparent and standardised instrument for hedging.
The SFC will continue to support the bourse in introducing more futures products, including yuan foreign exchange futures against other currencies and yuan-denominated gold futures, she added.
