China launches US$70 billion swap tool to enhance stock market liquidity
Earlier than expected launch of China’s Securities, Funds and Insurance companies Swap Facility triggers market enthusiasm, speculation of more supportive policies
China’s central bank on Thursday officially launched a new swap tool to “promote the healthy development of the capital markets”, with an initial size of 500 billion yuan (US$70.7 billion).
The new swap facility would enable qualified securities, mutual funds and insurance companies to swap government bonds or central bank bills with their holdings of corporate bonds, stocks or exchange-traded funds as collateral, according to a statement released on the website of the People’s Bank of China.
It allows institutional investors to exchange assets with poorer liquidity for assets with higher liquidity, which can be only used to invest in China’s stock markets.
The central bank would begin accepting applications immediately and the facility’s size could be further expanded, the bank’s statement added.
The tool was launched to stabilise market expectations
However, it would not mean an increase of money supply nor a change to the law forbidding the central bank from lending to non-banking institutions, the state-backed China Securities Journal reported.
The launch of the facility did come earlier than expected, though, according to Chinese financial media outlet Cailianshe, citing analysts from Huachuang Securities.