The introduction of Swap Connect represents a significant step in further opening up the Mainland derivatives market, with the aim of addressing existing challenges. This new mutual access arrangement will allow investors to participate in the financial derivatives markets in both Mainland China and Hong Kong through a connection between financial infrastructure institutions in both places for trading, clearing, and settlement.
At the initial stage, Swap Connect will focus on implementing northbound trading of IRSs, enabling international investors to trade and clear onshore RMB IRSs without needing to change their existing trading and settlement practices. This will provide international investors with a convenient channel to access the onshore IRS market, ultimately encouraging more foreign participation in the onshore bond market. The increased foreign participation is expected to lead to greater participant diversity and higher liquidity, ultimately contributing to the further development of both the financial derivatives and bond markets onshore.
Overall, Swap Connect is expected to play a pivotal role in opening up China's derivatives market, providing international investors with a convenient access channel to the onshore bond market and promoting greater participation and liquidity in both the financial derivatives and bond markets.