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HKMA Launches Offshore RMB Bond Repo Arrangement via Northbound Bond Connect
The Hong Kong Monetary Authority (HKMA) has announced a groundbreaking move in the financial landscape by introducing an offshore Renminbi (RMB) bond repurchase (repo) arrangement, utilizing the Northbound Bond Connect. This innovative step is aimed at strengthening liquidity management and cementing Hong Kong’s position as a preeminent hub for offshore RMB activities.
According to official statements, the new repo business structure enables participants in the Northbound Bond Connect to utilize eligible onshore bonds as collateral for RMB repo transactions in Hong Kong. The initiative is expected to commence shortly, marking a significant milestone in the financial integration between Hong Kong and mainland China.
All existing Northbound Bond Connect investors are eligible to participate, including Central Moneymarkets Unit (CMU) members and offshore investors maintaining CMU sub-accounts through Hong Kong custodian banks. Furthermore, a wide range of bond types held under the Northbound Bond Connect can be used as collateral.
In its initial phase, the repo business will rely on 11 Primary Liquidity Providers designated by the HKMA, acting as market makers. Each transaction requires involvement from at least one of these market makers as a counterparty, allowing for various channels, including over-the-counter (OTC) bilateral agreements and existing Northbound Bond Connect mechanisms, to facilitate trading.
Transactions will be settled through CMU’s Repo Service, with detailed operational details to be announced in the future. Market makers are obligated to report transaction data to the HKMA by the end of each day, ensuring seamless market monitoring.
To guarantee the smooth operation of this new business, initial leverage limits have been set, restricting bond reuse during the repo period. The HKMA will continuously review and potentially adjust these arrangements based on operational experiences.
This proactive approach underscores the authority’s commitment to fostering a robust and sustainable offshore RMB business environment.
Source: Blockchain.News
