Swap Connect to be built for HK, China's financial markets

It will debut in six months.

To integrate financial markets between Hong Kong and Mainland China, Hong Kong Exchanges and Clearing Limited (HKEX) worked with China Foreign Exchange Trade System (CFETS) and Shanghai Clearing House (SHCH) to build Swap Connect, an access programme between the two markets.

Swap Connect will provide trading and clearing services for Hong Kong and global investors to access the Mainland China financial derivatives market and for investors in Mainland China to access Hong Kong’s financial derivatives market.

In its initial stage, Swap Connect will allow Hong Kong and international investors to participate in Mainland China’s interbank interest rate swap market, without changing their existing trading and settlement practices.

OTC Clear, an HKEX subsidiary, inked a framework agreement with CFETS and SHCH to develop infrastructure for Swap Connect.

"Under Swap Connect, CFETS will provide trading services for investors, allowing Hong Kong and international investors to access Mainland China’s interbank derivatives market through overseas third-party trading platforms recognised by the People's Bank of China, without changing their trading practices," HKEX said in a press statement.

"The CFETS will transmit real-time transaction information to OTC Clear and SHCH to support the efficient clearing of these transactions," it added.

OTC Clear and SHCH will build a clearing link, with OTC Clear providing central clearing services for Hong Kong and international investors, whilst SHCH will implement central clearing services for investors in Mainland China. 

The two clearing houses will handle daily margin management and settlement payments and put up a central counterparty margin fund to manage default risk.

Swap Connect can also promote sustainable growth of both markets and improve Hong Kong's status as a global financial centre.

Swap Connect will debut after about six months.