Hong Kong Exchanges and Clearing Limited (HKEX) said Monday that its clearing subsidiary, OTC Clear, will now accept China Government Bonds (CGB) and Policy Bank Bonds as collateral for all over-the-counter (OTC) derivative transactions.
OTC Clear to Accept China Government Bonds as Collateral for All Derivatives
The announcement follows approval from the Securities and Futures Commission (SFC), the Hong Kong Monetary Authority (HKMA), and the People’s Bank of China.
HKEX explained that the initiative allows international investors holding these bonds through Bond Connect to use them as margin collateral for OTC derivatives.
Initially implemented for Northbound Swap Connect, OTC Clear expects to extend this facility to other derivatives by the end of the first quarter of 2025.
HKEX said it will collaborate with the SFC and the Central Moneymarkets Unit (CMU) of the HKMA to ensure a smooth transition.
The move is expected to boost the utility of RMB-denominated assets and promote the internationalisation of the Chinese yuan.
HKEX adds that it believes the acceptance of CGB and Policy Bank Bonds as collateral will provide greater flexibility and liquidity for investors engaging in derivative transactions.
OTC Clear offers clearing services for various financial instruments, including interest rate swaps, non-deliverable currency forwards, cross-currency swaps, and deliverable foreign exchange (FX) transactions.
