PBoC & HKMA: No investment quota for northbound Bond Connect trade

Dan Barnes

The People’s Bank of China (PBoC) and the Hong Kong Monetary Authority (HKMA) have given their approval to the local market infrastructure providers to collaborate in establishing mutual bond market access between Hong Kong and Mainland China, called ‘Bond Connect’.

Bond Connect is an arrangement that will enable mainland and overseas investors to trade bonds tradeable in the mainland and Hong Kong bond markets through connection between the mainland and Hong Kong Financial Infrastructure Institutions.

Northbound trading will commence first in the initial phase, with overseas investors from Hong Kong and other countries and areas getting access to the China Interbank Bond Market through mutual access between the Hong Kong and Mainland Financial Infrastructure Institutions in respect of trading, custody and settlement. There will be no investment quota for northbound trading.

Southbound trading, with mainland investors investing in the Hong Kong bond market through mutual access between the financial infrastructure institutions of the two places, will be explored “in due course”.

Bond Connect is intended to support Hong Kong’s development and deepen cooperation between the mainland and Hong Kong. It will abide by the relevant laws and regulations of the bond markets of the two jurisdictions. Northbound trading will follow the current policy framework for overseas participation in the China Interbank Bond Market and at the same time respect international norms and practices. The scope of eligible investors and products under northbound trading will be consistent with the scope specified in the relevant notices promulgated by PBoC.

Through the cooperation and connection between the financial infrastructure institutions of the two places, overseas investors should be able to invest in the mainland bond market, allocate renminbi assets and manage associated risks more easily than at present.

Regulators of the Hong Kong and mainland bond markets will respectively take all necessary measures to establish, in the interest of investor protection, effective mechanisms under Bond Connect to respond to any misconduct in a timely manner. They will enter into a memorandum of understanding on supervisory cooperation to establish effective supervisory cooperation arrangements and liaison mechanisms in order to maintain financial market stability and fair trading.

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 formal launch date for Bond Connect is yet to be announced.