[ U P D A T E ]
HKMA introduces range of post-trade reforms to deepen connection to Mainland China
One of the main changes in the new framework will see participants in the Northbound Bond Connect able to use eligible onshore bonds as collateral for RMB repo transactions in Hong Kong.
The Hong Kong Monetary Authority( HKMA) has introduced new post-trade measures to deepen its connectivity with Mainland China in further efforts to become the global offshore RMB business hub. One of the main initiatives launched is an offshore RMB bond repurchase( repo) arrangement to strengthen its position as a global hub for offshore RMB business and improve the management of RMB liquidity. In addition, HKMA said it will be extending the settlement time under the Central Securities Depositories( CSDs) linkage and supporting the settlement of multi-currency bonds in RMB, Hong Kong dollar, US dollar and euro through the CSDs linkage. There will also be an inclusion of Northbound Bond Connect bonds as eligible margin collateral at OTC Clearing Hong Kong Limited( OTCC). As for the repo programme, this will be open to all existing Northbound Bond Connect investors, including Central Moneymarkets Unit( CMU) members and offshore investors who have CMU sub-accounts opened through Hong Kong custodian banks that are CMU members. The scheme will cover all types of bonds held by participants under Northbound Bond Connect. William Shek, head of markets & securities services, Hong Kong at HSBC, said:“ HSBC welcomes today’ s move to expand the use of the onshore Chinese Government Bonds and Policy Bank Bonds as eligible for collateral posting for derivatives products cleared by HKEX OTCC as well as the development of the offshore RMB repurchase( repo) arrangement. These measures will contribute significantly to the collateral financing markets in Hong Kong and are yet another milestone in the internationalisation of the RMB.” To kick off the programme, 11 primary liquidity providers, designated by the HKMA, will act as market makers. A repo transaction will require at least one of these market makers to be involved as a counterparty. Shek added:“ On day one of implementation, we were pleased to be among the first few investors to leverage onshore bonds as collateral with HKEX for Northbound Swap Connect trades as a committed supporter of China’ s capital market liberalisation. We believe today’ s debut will give global investors more reason, as well as the confidence, to invest in the world’ s second largest bond market.” Participants will have flexibility in how they structure their repo agreements. Options include templates like the Global Master Repurchase Agreement( GMRA) or the National Association of Financial Market Institutional Investors( NAFMII)’ s Bond Repurchase Master Agreement. Transactions can be conducted either bilaterally, over-thecounter( OTC); through the same linkage used for Northbound Bond Connect transactions; or through offshore and onshore electronic trading platforms. The settlement will be handled through the repo service by CMU. In a LinkedIn post, James Fok, chief commercial officer at HKMA, said:“ These steps will support greater international investment diversification for Mainland households and further open up access to the mainland market for international bond issuers. The expansion of onshore Chinese bonds’ use as collateral in international markets will further increase the attractiveness of Chinese bonds to global investors, unlocking an estimated US $ 2.5 trillion in additional international demand for Chinese bonds.”
During the initial phase, there will be limits on leverage, meaning that while the bond ownership will transfer to the repo buyer, the bonds will be locked on the CMU platform and cannot be reused until the repo period ends. Market makers will be required to report transaction data to the HKMA on the same day to facilitate market monitoring. Further communication will be made with market makers to finalise reporting requirements and channels. Fok added:“ Today’ s announcement was the result of the longstanding collaborative efforts of the PBOC, HKMA, Securities and Futures Commission( SFC) and
HKEX teams, as well as of my colleagues at CMU
OmniClear, and highlights the lynchpin role played by Hong Kong in supporting growing cross-border investment between the Chinese and international markets. We look forward to much more to come!”
14 Global Custodian Spring 2025