Swap Connect

Overview

Swap Connect is the latest pioneering innovation in our Connect Story -- a new Connect channel and the world’s first derivatives mutual market access programme.

Starting initially with a Northbound channel, investors can trade and clear onshore RMB interest rate swaps, without changing their existing trading and settlement practices.

Swap Connect is run in partnership by China Foreign Exchange Trade System (CFETS), Shanghai Clearing House (SHCH) and HKEX through its clearing subsidiary OTC Clearing Hong Kong Limited (OTC Clear).

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Key Benefits

Direct Access to Onshore CNY Interest Rates Swap Dealers

International Risk Management Standards

Cross Product Margining between Offshore and Onshore Products

Onshore Account Opening not Required

Product Types

CNY Fixed-to-Floating Interest Rate Swap (“IRS”)

Floating Rate Options*:

7-day Repo (FR007)
SHIBOR 3-Month (Shibor3M)
SHIBOR Overnight (ShiborO/N)

Support product features including forward starts, backdated trade, IMM roll dates and upfront payment.

*Identical to CFETS & SHCH eligibility

Clearing Acceptance Flow

Overview

Offshore investors and onshore dealers execute trades and match on CFETS.
OTC Clear provides clearing services to offshore investors while SHCH provides clearing services to onshore investors.
Offshore investors will face OTC Clear without onshore obligations to SHCH.
Swap Connect shares the same operational model with existing OTC Clear products.

	Offshore investors and onshore dealers execute trades and match these on CFETS.
	CFETS sends the clearing request to both OTC Clear and SHCH.
	SHCH provides the final clearing status confirmation to both OTC Clear and CFETS.
	Offshore investors will face OTC Clear once the trade is cleared.

Risk Management Framework and Holiday Arrangements

An inter-CCP margin will be introduced to Swap Connect to provide adequate protection against clearing house default and to mitigate spill-over effects.
Both OTC Clear and SHCH follow the valuation and holiday arrangements of the onshore interbank derivatives market to carry out daily settlement and risk management activities; the net exposure facing each other is subject to each clearing house’s own daily risk monitoring and risk management framework.
The trading calendar will follow the onshore interbank derivatives market operating calendar.

Offshore Netted Cross-Border Settlement

OTC Clear will perform cross-border settlement with SHCH for offshore investors on a daily netted basis that includes coupons, variation margin etc.
All payments between OTC Clear and offshore investors are transferred by the RTGS system operated by Hong Kong Interbank Clearing Limited (HKICL).

Eligible Collateral under Swap Connect

Initial Margin: OTC Clear accepts cash in USD, HKD, RMB (offshore) and EUR and non-cash instruments (US Treasury Bills/Notes, Hong Kong Exchange Fund Bills/Notes and Bonds issued by the Ministry of Finance of the People’s Republic of China denominated in CNH).
Participating Margin: OTC Clear accepts cash in USD, HKD and RMB (offshore).
End-of-Day Variation Margin: OTC Clear accepts cash in RMB.

How to Join Swap Connect

If you are interested in participating in SwapConnect, please complete the following.

Application process

Investors are required to have their OTC Clear account information ready before submitting an application to Bond Connect Company Limited (BCCL).
With CFETS
- The investors submit application forms to BCCL for trading permission.
With OTC Clear
- For existing Clearing Members, the investors will submit OTC Clear operational forms to sign up for additional clearing product(s) and complete an operational readiness test for clearing permission.
- For client clearing, the investors need to appoint a clearing broker for client clearing services.

Trading Hours	09:00 – 12:00; 13:30 – 17:00 (Standard CFETS trading time)
Clearing Hours	09:00 – 12:00; 13:00 – 17:30