Our reporter Yang Jie
On May 15, 2023, the mainland and Hong Kong interest rate swap market interconnection cooperation (hereinafter referred to as "swap") was officially put into operation, of which the "northbound swap" took the lead in opening. As779pubcomAs a new milestone in the opening of China's financial market, "swap" is not only convenient for foreign investors to manage interest rate risk in accordance with overseas trading habits, but also of great significance for further opening up the domestic bond and derivatives market.
From scratch, from zero to one, it is innovation and even a breakthrough. Over the past year, the "swap" has added new vitality to the development of China's bond market, the number of foreign investors and the volume of RMB interest rate swap transactions have continued to rise, and the linkage between domestic and foreign financial markets has been further strengthened. How do participating institutions feel over the past year? With the gradual optimization of the "swap" mechanism, what are the opportunities and directions of financial institutions in the future? In this regard, the "Securities Daily" reporter interviewed the relevant responsible persons of a number of institutions.
Domestic and foreign investors
Actively participate in
In order to implement the strategic plan of the CPC Central Committee and the State Council on steadily promoting the opening of China's financial market to the outside world, the "swap" was officially launched on May 15, 2023. This means that the two-way interconnection mechanism between the mainland and Hong Kong financial markets has been further extended from stocks (Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect), debt (Bond Link) and financial management (cross-border LiCaiTong) to interest rate derivatives.
The underlying business of "swap" is RMB interest rate swap Agreement (IRS), which refers to the behavior that both parties agree to exchange cash flow according to the agreed amount of RMB principal within a certain period of time in the future. The "swap" solved the previous problems such as inconvenience and high cost for foreign investors to carry out RMB interest rate risk management, and effectively supported domestic and foreign investors to participate in the financial derivatives markets of the two places through the connection of infrastructure institutions in the mainland and Hong Kong.
Since the launch of the "swap" business, transaction clearing and other mechanisms have operated smoothly, investors at home and abroad have actively participated, and the volume of business has continued to rise, providing a convenient and efficient risk management tool for investors at home and abroad to allocate RMB assets.
Wang Wei, a researcher at the Dawan District Institute of Finance of the Bank of China Shenzhen Branch, told the Securities Daily that the "swap" is conducive to global investors' better participation in China's financial market through the Hong Kong platform, which is more in line with overseas trading habits and avoids the risk of legal and information asymmetry. At the same time, the "swap" has promoted the process of RMB internationalization. At present, both trading and settlement currencies are RMB, which further enriches the "ecosystem" of overseas RMB assets and enhances the status of RMB in the global market. In addition, the swap uses Hong Kong's financial infrastructure and intermediaries as a link to enter the onshore interest rate swap market, helping to consolidate Hong Kong's position as an offshore RMB hub and an international financial centre.
Over the past year, the work of the "swap" participating institutions has also achieved positive results. The relevant person in charge of the Financial Market Department of China Construction Bank said in an interview with the Securities Daily that in the year since the launch of the northbound swap, the head office of China Construction Bank has mobilized the strength of the whole group. give full play to the advantages of state-owned banks in derivatives trading, fully meet the quotation, trading and other needs of foreign investors, and reach a number of interest rate swap transactions with a number of foreign investors. Pegged interest rates for FR007, Shibor3M and other varieties. At the same time, CCB (Asia) also provides agent clearing services for foreign investors, participates in all aspects of interconnection, and actively promotes the strategy of RMB internationalization.
A person from the Financial Markets Department of Citic Bank told the Securities Daily: "in the year since the launch of the northbound swap, our bank has continuously expanded the circle of friends of cross-border institutions, increased cross-border trading volume, and expanded business influence, with a transaction volume exceeding 100 billion yuan."
"We feel the enthusiasm of foreign investors." Zhang Jinqiu, vice president and co-director of Capital Markets and Securities Services of HSBC (China) Co., Ltd., told Securities Daily that in the past year, HSBC China has concluded interest rate swap transactions with a number of foreign central bank institutions, commercial banks and asset management institutions, involving a variety of floating benchmark interest rates and terms, helping foreign investors effectively hedge interest rate risk.
Arrangement of "swap" mechanism
Further optimization
On the occasion of the first anniversary of the launch of the "swap", on May 13, the people's Bank of China once again released favorable policies, further optimized the arrangements of the "swap" mechanism, enriched product types, and improved supporting functions. In addition, the National Interbank loan Center, Interbank Market Clearing House Co., Ltd., and Hong Kong over-the-counter Clearing Co., Ltd. will simultaneously introduce other system optimization and preferential measures to reduce the business participation costs of domestic and foreign investors.
Zeng Jizhi, head of Standard Chartered Financial Markets Hong Kong and Greater China and North Asia, told Securities Daily that these optimization measures will enrich the product category and provide a more effective mechanism for early contract withdrawal, so that investors can carry out "closing" activities.779pubcomAnd improve the supporting functions, launch contract compression services and supporting historical interest contracts, effectively reduce the capital demand of investors, so that investors can more flexibly carry out "swap" northbound transactions.
"We have received a lot of feedback and overseas investors are looking forward to and welcoming the launch of the interest rate swap contract with the international money market settlement date as the payment cycle, which can help it avoid the risk of large fluctuations in fixed interest rates. With the continuous improvement of various mechanisms, the number of foreign investors is expected to double in the future. Next, our goal is to attract more customers. " Xu Zhaoting, general manager of Deutsche Bank's China Investment Banking Department, told the Securities Daily.
In recent years, with the deepening of the opening of China's inter-bank bond market to the outside world, the demand of foreign investors for RMB interest rate risk management continues to increase. Data show that by the end of March 2024, the amount of interbank RMB bonds held by foreign investors reached 4. 5%.779pubcom.00 trillion yuan, accounting for about 2% of the total escrow volume in the interbank market.779pubcom.9%.
Zeng Jizhi said that as the market becomes more and more familiar with the operation of "swap", the demand of international investors for northbound trading of "swap" is increasing, and they are actively managing interest rate risk more effectively through the use of mainland financial derivatives. This will help to promote the development of the mainland financial derivatives market and further accelerate the pace of RMB internationalization.
The rapid development of "swap" business also provides a new stage and development opportunities for financial institutions. The relevant person in charge of the Financial Market Department of the Construction Bank said that the Construction Bank will continue to pay attention to the trading needs of foreign investors, constantly enrich the trading varieties of existing securities and derivatives, and comprehensively improve its quotation ability. through "northbound swap" and "Bond Link", we will continue to provide all-round and diversified quality services to foreign investors and contribute to the high-quality development and high-level opening up of China's financial market.
In the view of the above-mentioned Citic Bank, the launch of the "swap" has successfully broadened the business extension and connotation of domestic banking services for cross-border institutional investors. In the next step, Citic Bank will continue to improve the quality and efficiency of services for cross-border institutional investors, and form a synergy of advantageous cross-border businesses such as "swap", "Bond pass", "Bond settlement Agent", "Foreign Exchange Trading" and "Cross-border Trusteeship". Provide multi-scene, high-quality cross-border comprehensive financial services for foreign institutional investors in an all-round way.
With the continuous development of the 'swap' business, the demand for RMB assets investment and financing and risk hedging management of overseas institutions will continue to deepen, and domestic financial institutions can fully tap the value of the whole product chain in the financial market. to provide customers with a package of cross-border financial services. At the same time, through contacts with overseas institutions, domestic financial institutions can better carry out research and judgment on global markets and identify trading and investment opportunities. " Wang Wei suggested that domestic financial institutions should constantly improve the professional level of derivatives financial services; actively give full play to the advantages of global layout to create greater value for customers through diversified supporting financial services; and strengthen linkage with the group's overseas banks. Actively cooperate in customer recommendation and new product development, and assist in cross-border clearing and custody services.