Swap Connect on way as ETF trade kicks off

Agencies and staff reporter

China and Hong Kong will launch a new "Swap Connect" scheme in six months, allowing mutual access to interest rate swaps trading to promote financial derivatives markets, and also upgrade a separate currency swap agreement.

This came as the northbound trading of the ETF Connect saw 150 million yuan (HK$175.96 million) turnover and the southbound link recorded HK$84.13 million worth of transactions on its debut yesterday, while the Bond Connect scheme celebrated its five-year anniversary.

The so-called Swap Connect will start in six months, pending regulatory approvals, market readiness and the completion of operational arrangements, according to a joint statement by the People's Bank of China and Hong Kong authorities. It will help investors manage risks for bond investments on the mainland, according to the Hong Kong Monetary Authority.

Only northbound trading will be permitted at the initial stage, which means foreign investors can trade onshore interest-rate swaps but not the other way around. Southbound trading, which enables mainland investors to trade offshore contracts, will be explored in due course.

The Swap Connect is another important milestone in the integration of the financial markets of the mainland and Hong Kong, Chief Executive John Lee Ka-Chiu said.

Swap Connect will create synergy with Bond Connect and help global investors manage interest-rate risks for their bond investment on the mainland, said HKMA chief executive Eddie Yue Wai-man.

The Securities and Futures Commission said it was confident that the Swap Connect would be well received by investors and that it will be implemented by the end of the year.

The People's Bank of China also said in a separate statement yesterday that it has upgraded a currency swap facility with Hong Kong to a permanent agreement - its first standing swap agreement - and expanded the size to 800 billion yuan from 500 billion yuan.