The Hong Kong Stock Exchange issued an article on May 20 stating that on the occasion of the first anniversary of the smooth operation of the “swap”, Hong Kong OTC Clearing House Co., Ltd. (hereinafter referred to as the Hong Kong OTC Clearing House), a subsidiary of the Hong Kong Stock Exchange Group, and China Foreign Exchange Trading Center and Interbank Market Clearing House Co., Ltd. (hereinafter referred to as Shanghai Clearing House) jointly launched a number of “swap” business optimization measures today to better meet the needs of international investors to manage RMB interest rate risk. On the first day of the introduction of the optimization measures, a total of 26 domestic and foreign institutions carried out IMM transactions and traded RMB 5.483 billion IMM contracts. Four domestic and foreign institutions used contract compression services, reducing nominal principal amounts by a total of RMB 5.5 billion.

Specific optimization measures include:

IMM contracts have been added that use the International Monetary Market (International Monetary Market) settlement date (that is, the third Wednesday of March, June, September, and December every year) as the payment cycle, which is in line with the international interest rate swap product market.

A contract compression service has been introduced to allow participating institutions to reduce contracts with the same transaction elements but in the opposite direction, making it easy for participating institutions to terminate the swap contract early before it expires, reducing the capital cost of participating institutions and improving transaction settlement efficiency.

Added historical interest contracts supporting the contract compression service, that is, contracts with a starting date earlier than the current date.

Furthermore, in order to reduce institutional participation costs, the China Foreign Exchange Trading Center, the Hong Kong OTC Clearing House, and the Shanghai Clearing House will continue to fully reduce transaction and settlement fees for one year, and waive related fees in the early stages of the contract reduction business.

As an innovative initiative connecting the OTC derivatives markets of Hong Kong and the mainland, “Swap Connect” has been running smoothly since its launch on May 15, 2023, and trading is becoming more and more active, injecting new vitality into the financial markets of both places.

On the first anniversary of the launch of the “swap”, the three institutions, with the support of regulators in the two regions, jointly launched the above optimization measures. The aim is to help international institutional investors use RMB interest rate swaps to manage interest rate risk in their continuously increasing RMB bond holdings, help the RMB internationalization process, and enhance Hong Kong's competitiveness as an international financial center.

On the first day of the introduction of the optimization measures, a total of 26 domestic and foreign institutions carried out IMM transactions and traded RMB 5.483 billion IMM contracts. Four domestic and foreign institutions used contract compression services, reducing nominal principal amounts by a total of RMB 5.5 billion.

In the future, the three institutions will continue to work closely with the regulators of the two regions and all market participants to continuously optimize and develop the “swap” business, and promote the further opening up of the Chinese financial market to the outside world and the internationalization of the RMB.

Editor/Jeffrey