Stock Connect

Central banks approve clearing agencies for bond connect

Regulators say that the bond connect scheme will start with northbound trading, allowing foreigners to invest in the mainland bond market

PUBLISHED : Tuesday, 16 May, 2017, 8:37pm
UPDATED : Tuesday, 16 May, 2017, 8:37pm

The central banks in the mainland and Hong Kong have approved the clearing agencies in both markets to work with the Hong Kong Exchanges and Clearing on the rules for the bond connect scheme, according to a joint announcement by the People’s Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) on Tuesday. The announcement did not include a launch date.

The bond connect would start with northbound trading that will allow international investors to trade in the China Interbank Bond Market, the statement said.

The southbound trading for mainlanders to trade in Hong Kong bonds would come at a later stage.

The formal launch of Bond Connect will be separately announced, the statement said.

Premier Li Keqiang said in March that the bond connect would take place this year, and the Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia said last week that technical details of the scheme would be announced in the next few weeks. Some brokers have speculated that the launch date would be announced by July 1 to mark the 20th anniversary of the handover of Hong Kong.

“Bond Connect will be formally launched after relevant rules and system development have been finalised, market participants’ practical needs have been suitably addressed, relevant regulatory approvals have been granted and all other necessary preparations have been completed,” the statement said.

“Bond Connect marks another milestone in the liberalisation of the mainland’s capital account,” said

Norman Chan Tak-lam, chief executive of HKMA.

“The mainland now hosts the world’s third largest bond market with an outstanding amount of about 65 trillion yuan (US$9.43 trillion). The less than 2 per cent holding by overseas investors provides ample room for much stronger presence of overseas investors. Through Bond Connect platform, Hong Kong will serve as the gateway for overseas investors to enter the mainland bond market, leveraging on our role as an international financial centre as well as an intermediary for capital flows between the mainland and international markets,” Chan said.

There are currently two stock connect schemes that allow cross border trading. The Hong Kong and Shanghai stock connect started in November 2014, while the Hong Kong and Shenzhen stock connect began trading in December last year.