Swap Connect - Taking Collateral over CGBs

From 13 January 2025, Chinese Government Bonds and Policy Financial Bonds (“CGBs”) held through Bond Connect will be accepted by OTC Clearing Hong Kong Limited (“OTCC”) as collateral for Northbound Swap Connect transactions. 

This milestone marks the inaugural use of CGBs as offshore collateral, signifying a pivotal moment in the evolution of CGBs as a tool for treasury management and collateral liquidity in the international markets. Amidst the worldwide shortage of high-quality government securities, deploying the vast CGBs resources as offshore collateral has the potential to revolutionise our international financial markets.

Linklaters Zhao Sheng have advised the Hong Kong Exchanges and Clearing Limited (HKEX) on the establishment of the China Connect Schemes, including Stock Connect and Bond Connect and Swap Connect, as well as the setting up of OTCC. With dedicated teams in our Hong Kong SAR and Shanghai offices, we regularly advise financial institutions and the buy-side on the full spectrum of issues relating to China Connect Schemes. Recently, we are pleased to have advised HKEX on the establishment of Swap Connect as well as the use of CGBs held through Bond Connect as collateral for Northbound Swap Connect transactions. We would be happy to discuss any questions you may have on the implications of using CGBs held via Bond Connect for Swap Connect collateral purposes. You may also access our previous client materials on Mainland China-Hong Kong access schemes here.