Swap Connect: Taking collateral over Bond Connect Securities

The PBoC has announced its support for the use of CGBs held at Bond Connect as collateral for Northbound Swap Connect transactions, paving the way to wider acceptance of CGBs as collateral in the international markets. This ground-breaking proposal to be launched by end of 2024 improves capital efficiency and reduces liquidity costs for investors, and further invigorates the China Connect schemes as we celebrate its 10th anniversary.

In this seminar, experienced China Connect advisors from Linklaters will discuss how title transfer and security interest collateral arrangements over China Government Bonds and Policy Financial Bonds (“CGBs”) are allowed for Northbound Swap Connect, despite “non-trade transfer” restrictions, and the implications for clearing members and clearing clients of OTC Clear.  

Topics we will discuss include:

• Background

> Swap Connect

> Non-cash collateral

• Taking CGB as non-cash collateral

> What and how (PBOC rules, CMU requirements, OTCC rules and deeds of charge): Single custodian and non-trade transfer requirements

> House trades and Client trades

• Legal opinions: Hong Kong, China and regulatory capital treatment by CM and Client
•  ISDA FIA Addendum
• The way forward