“The Next Phase of Swap Connect” - New Tools, Enhanced Products and More Solutions for Investors
30 May 2024
To mark the 1st year milestone of Swap Connect, three enhancements were jointly launched by China Foreign Exchange Trade System (“CFETS”), Shanghai Clearing House (“SHCH”) and OTC Clear (a subsidiary of HKEX), which demonstrate a strong commitment from market regulators to cater to the needs of the international community and deliver more advanced risk management tools.
We have hosted an online seminar themed “The Next Phase of Swap Connect” on 16 May 2024, and invited CFETS, SHCH, HKEX and National Association of Financial Market Institutional Investors (“NAFMII”) to share the important progress of Swap Connect, introduce the latest enhancements in detail, and discuss relevant market feedback.
Opening the seminar, Ms. Yuexian JIN, Deputy General Manager of RMB Market Department at CFETS noted, “Since the official launch of Swap Connect on 15 May of last year, 60 overseas investors has participated, covering a variety of institutional types including overseas central banks, commercial bank, security firms and funds. In the past year, the trading and clearing of Swap Connect has grown steadily. As of the end of April 2024, the aggregate notional amount has reached RMB1.77 trillion.”
Ms. Leilei CHENG, General Manager of Product Development Department at SHCH summarized the enhancements of Swap Connect scheme: “Mainland and overseas infrastructures established upgrades and enhancements of Swap Connect under the guidance of regulatory authorities, reviewing the operational experience in the past year, and carefully considering comments and suggestions from Mainland and overseas investors. The upgrades mainly cover 3 points: first, enriching the product types which could be cleared; second, improving the ancillary services of notional management; third, reducing investors’ cost in the long run.”
Glenda SO, Co-Head of Markets at HKEX said: “Swap Connect is the world’s first derivatives mutual market access programme, offering international investors a unique channel to participate in China’s onshore RMB interest rate swaps market, supporting their China-related risk-management and investment needs. Swap Connect is one of the latest additions to HKEX’s unique Connect franchise, and we look forward to further elevating the attractiveness of the Connect universe – through continued expansion of our product ecosystem and new enhancements to our trading infrastructure – addressing the evolving preferences and trading strategies of our onshore and offshore market participants.”
Ms. Jing DONG, Head of Secondary Market Development & Surveillance Department at NAFMII noted: “The Swap Connect Cleared Derivatives Agreement aligns with the mainstream market trading model, considering the needs for basic risk management and compliance. Under this framework, it simplifies the negotiation elements and reserves additional clauses in the appendix for trading parties to supplement tailored terms. The Agreement was published in both Chinese and English versions, incorporating multiple applicable law and dispute resolution options for onshore and offshore investors to conduct business freely and equally.”
In the presentation session, guest speakers from CFETS, SHCH and HKEX provided detailed introduction to the recent Swap Connect enhancements, including:
Additionally, the guest speaker from NAFMII provided a detailed explanation to the recently published Swap Connect Cleared Derivatives Agreement (2024 Version).
During the Q&A session, plenty of questions were raised from overseas investors eagerly. The guest speakers addressed investors' concerns, providing explanations on topics such as the definition of risk management, the scope of eligible collateral, the compression process, and important considerations when signing the Swap Connect Cleared Derivatives Agreement.
We have hosted an online seminar themed “The Next Phase of Swap Connect” on 16 May 2024, and invited CFETS, SHCH, HKEX and National Association of Financial Market Institutional Investors (“NAFMII”) to share the important progress of Swap Connect, introduce the latest enhancements in detail, and discuss relevant market feedback.
Opening the seminar, Ms. Yuexian JIN, Deputy General Manager of RMB Market Department at CFETS noted, “Since the official launch of Swap Connect on 15 May of last year, 60 overseas investors has participated, covering a variety of institutional types including overseas central banks, commercial bank, security firms and funds. In the past year, the trading and clearing of Swap Connect has grown steadily. As of the end of April 2024, the aggregate notional amount has reached RMB1.77 trillion.”
Ms. Leilei CHENG, General Manager of Product Development Department at SHCH summarized the enhancements of Swap Connect scheme: “Mainland and overseas infrastructures established upgrades and enhancements of Swap Connect under the guidance of regulatory authorities, reviewing the operational experience in the past year, and carefully considering comments and suggestions from Mainland and overseas investors. The upgrades mainly cover 3 points: first, enriching the product types which could be cleared; second, improving the ancillary services of notional management; third, reducing investors’ cost in the long run.”
Glenda SO, Co-Head of Markets at HKEX said: “Swap Connect is the world’s first derivatives mutual market access programme, offering international investors a unique channel to participate in China’s onshore RMB interest rate swaps market, supporting their China-related risk-management and investment needs. Swap Connect is one of the latest additions to HKEX’s unique Connect franchise, and we look forward to further elevating the attractiveness of the Connect universe – through continued expansion of our product ecosystem and new enhancements to our trading infrastructure – addressing the evolving preferences and trading strategies of our onshore and offshore market participants.”
Ms. Jing DONG, Head of Secondary Market Development & Surveillance Department at NAFMII noted: “The Swap Connect Cleared Derivatives Agreement aligns with the mainstream market trading model, considering the needs for basic risk management and compliance. Under this framework, it simplifies the negotiation elements and reserves additional clauses in the appendix for trading parties to supplement tailored terms. The Agreement was published in both Chinese and English versions, incorporating multiple applicable law and dispute resolution options for onshore and offshore investors to conduct business freely and equally.”
In the presentation session, guest speakers from CFETS, SHCH and HKEX provided detailed introduction to the recent Swap Connect enhancements, including:
- The launch of solo compression service that enables participating institutions to compress trades with equal but opposite economics.
- The introduction of backdated trades, which allow trades with a past effective date and can be used with solo compression for trade unwinding.
- The introduction of International Monetary Market (IMM) trades based on IMM dates, i.e. the third Wednesday of March, June, September and December, to align with common practices on international interest rate swap markets.
- Waive the trading and clearing fees for one year, and the fee for compression service will also be waived in its initial stage.
Additionally, the guest speaker from NAFMII provided a detailed explanation to the recently published Swap Connect Cleared Derivatives Agreement (2024 Version).
During the Q&A session, plenty of questions were raised from overseas investors eagerly. The guest speakers addressed investors' concerns, providing explanations on topics such as the definition of risk management, the scope of eligible collateral, the compression process, and important considerations when signing the Swap Connect Cleared Derivatives Agreement.