With Swap Connect, investors will be able to execute IRS trades through Hong Kong’s internationally-familiar and trusted market, as they complete trades offshore simply with the use of renowned trading platforms. The drive to connect China and the world has been strong in recent decades, though China’s market regulatory regime and infrastructure in many ways remain distinct different from other parts of the world.Īs an example of this, the central counterparty clearing houses in China are still working on recognition for their services in several international jurisdictions. Swap Connect will offer a simple and seamless solution because international investors will soon be able to execute trades in the onshore IRS market under conditions they are familiar with. In this deep-dive into Swap Connect, we explore how it will work, what benefit it will bring to investors and what impact it will have on the RMB internationalisation process and Hong Kong’s position as an international financial centre. International investors have access to offshore interest rate swaps but the newly-announced Swap Connect, when implemented, will give them access to the onshore interest rate swap market. International capital flows into the onshore bond market have grown markedly, particularly via Bond Connect.Īs international investors’ exposure to China’s onshore bond market has grown, so has their need for risk management tools.
In recent years, China’s bond market has opened up to international investors through the launch of CIBM Direct and Bond Connect. China’s onshore bond market ranks as the second largest in the world and features prominently in the largest global bond indexes, with an 8% weighting in the Bloomberg Barclays Global Aggregate Bond Index as of 2022.”
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