HKEX Insight

Swap Connect launched in May 2023, marking a step forward for investors and creating the world’s first derivatives mutual market access programme.

Now, one year on, we have another step forward to celebrate: a new set of enhancements implemented this week giving investors new tools, enhanced product features and more solutions with which to risk-manage their RMB exposure according to international standards.

Make no mistake, this is an extremely exciting development.

At HKEX, we are always trying to make our markets better, and these new enhancements do just that.

Further, we are excited about the prospect of these enhancements helping our clients do more business with us.

International investors are increasingly active in China’s onshore bond markets and are asking for the tools, products and services implemented this week.

More fundamentally, the new enhancements send a powerful message from market regulators to the international investor community: namely, that we are going beyond hedging: we are applying international standards of risk management to RMB interest rate swap (IRS) products, and we are strengthening Hong Kong’s position as a RMB risk management centre.

The new enhancements to Swap Connect come one year after the programme was launched on 15 May 2023.

Swap Connect was launched to provide international investors with a channel through which to trade and clear onshore RMB interest rate swaps, without changing their existing trading and settlement practices.

Trading volumes have grown over time, and an increasingly diverse range of market participants have entered the market. At the end of April 2024, market participants had made more than 3,600 interest rate swap transactions with an aggregate notional amount of approximately RMB1.8 trillion, representing an average daily turnover of around RMB7.6 billion.

The average daily turnover calculated on a monthly basis had increased by around three times from approximately RMB3 billion in May 2023 to over RMB12 billion in April 2024. This performance indicates that Swap Connect is working as intended, but it also points to more fundamental trends at play.

Firstly, the increasing allocation to China fixed income by international investors and, secondly, the need for risk management tools around fixed income exposure given the changing macroeconomic outlook for China over the past 12 months.

In terms of volume, performance has been strong.

But we know from speaking to market participants that there’s a demand to go further, implement more enhancements and further align Swap Connect with international practices.