HKEX鈥檚 OTC Clear to accept CGBs and policy bank bonds as collateral
14 January 2025 Hong Kong, China
Image: filmlandscape/stock.adobe.com
The Hong Kong Monetary Authority (HKMA) has approved the use of China government bonds (CGB) and policy bank bonds 鈥� held by international investors through Bond Connect 鈥� as margin collateral.
It comes as part of new policy measures introduced by the HKMA and the People's Bank of China, with the aim to deepen the financial market connectivity between the two entities.
Both instruments may be used as margin collateral for all OTC derivative transactions cleared by OTC Clear 鈥� the clearing subsidiary of Hong Kong Exchanges and Clearing (HKEX).
OTC Clear, which began accepting these instruments as margin collateral for Northbound Swap Connect from 13 January 2025, will also be accepting them as margin collateral for other derivative transactions by the end of the first quarter of 2025.
OTC Clear will work closely with the 网爆吃瓜 and Futures Commission (SFC) and the Central Moneymarkets Unit (CMU) of the HKMA to prepare for this arrangement.
The use of CGB and policy bank bonds as collateral for a wider range of derivative transactions will enhance the utility of renminbi-denominated assets in the market, promoting the internationalisation of renminbi, says HKEX.
Having advised the HKEX on the design, drafting of documentation for, and the regulatory and legal issues on taking CGBs as collateral, Linklaters鈥� Asia head of structured finance and derivatives, Chin-Chong Liew, says:
鈥淭his project exemplifies the ongoing innovation in financial market infrastructure, with the potential to set a new precedent for the role of CGBs globally. We are proud to have played a pivotal role in advising HKEX on this landmark development, enabling greater scalability and cost efficiency in collateral use for the participants of OTC Clearing Hong Kong.
鈥淥ur team is excited to continue to be involved in market-changing developments, deepening the connectivity between mainland China and international markets. We welcome discussions with market participants on the implications of using CGBs held via Bond Connect for Swap Connect collateral purposes.鈥�
It comes as part of new policy measures introduced by the HKMA and the People's Bank of China, with the aim to deepen the financial market connectivity between the two entities.
Both instruments may be used as margin collateral for all OTC derivative transactions cleared by OTC Clear 鈥� the clearing subsidiary of Hong Kong Exchanges and Clearing (HKEX).
OTC Clear, which began accepting these instruments as margin collateral for Northbound Swap Connect from 13 January 2025, will also be accepting them as margin collateral for other derivative transactions by the end of the first quarter of 2025.
OTC Clear will work closely with the 网爆吃瓜 and Futures Commission (SFC) and the Central Moneymarkets Unit (CMU) of the HKMA to prepare for this arrangement.
The use of CGB and policy bank bonds as collateral for a wider range of derivative transactions will enhance the utility of renminbi-denominated assets in the market, promoting the internationalisation of renminbi, says HKEX.
Having advised the HKEX on the design, drafting of documentation for, and the regulatory and legal issues on taking CGBs as collateral, Linklaters鈥� Asia head of structured finance and derivatives, Chin-Chong Liew, says:
鈥淭his project exemplifies the ongoing innovation in financial market infrastructure, with the potential to set a new precedent for the role of CGBs globally. We are proud to have played a pivotal role in advising HKEX on this landmark development, enabling greater scalability and cost efficiency in collateral use for the participants of OTC Clearing Hong Kong.
鈥淥ur team is excited to continue to be involved in market-changing developments, deepening the connectivity between mainland China and international markets. We welcome discussions with market participants on the implications of using CGBs held via Bond Connect for Swap Connect collateral purposes.鈥�
Next industry article →
Robinhood broker-dealers to pay US$45M in penalties for violating securities law provisions
Robinhood broker-dealers to pay US$45M in penalties for violating securities law provisions
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to 网爆吃瓜 Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to 网爆吃瓜 Finance Times
