Citi indicates that it has executed the first tranche of northbound trades through Swap Connect with offshore investors.
This represents a trading link between the Chinese mainland and Hong Kong for executing and processing interest rate swaps and follows the earlier launch of Stock Connect and Bond Connect to support northbound and southbound trading for equities and fixed income securities.
Citi notes that, as the most important and prevalent derivatives product in the RMB-denominated interest rate market, RMB interest rate swaps (IRS) are an important tool for onshore and offshore investors to manage their RMB interest rate risk.
With this development, the Northbound Swap Connect facility offers a convenient means for offshore investors to trade in the onshore RMB IRS marketplace, enabling offshore investors to access quote prices directly through e-trading platforms from market makers based on the Chinese mainland.
An IRS contract traded bilaterally through Swap Connect will be novated through Shanghai Clearing House (SHCH) and Hong Kong OTC Clearing after necessary compliance checks are completed, thereby providing a centrally cleared IRS trading facility for both onshore and offshore investors.
Commenting on this announcement, Yang Ji, executive vice president of Citi China and general manager of Citi China Global Markets says: "Northbound Swap Connect' is another milestone in the connection and cooperation of financial infrastructures between the Mainland and Hong Kong after the 'Bond Connect' programme, which shows great significance for promoting the onshore financial derivatives market and building a high-level financial open-up.
“Citi China has been deeply involved in the onshore financial market, and has provided offshore investors with high-quality market-making quotations and custody services under Bond Connect, China Interbank Bond Market (CIBM) and Qualified Foreign Institutional Investor (QFII) schemes. We will continuously leverage the advantages of Citi’s cross-border business, focus on customer service and business promotion and contribute to the development of the onshore financial market.”
