Leung Chung-yin, the Executive Director of Market Supervision at the Securities and Futures Commission (SFC) of Hong Kong, unveiled key initiatives on Monday to bolster the region's fixed-income landscape. Delivering a keynote address at the fourth HKEX China Opportunities Forum, he outlined plans to normalize government bond issuance and explore phased introductions of central counterparty clearing for bond repurchase agreements.
The SFC director emphasized three pivotal strategies to deepen Hong Kong's connectivity with both mainland and international markets. The first priority focuses on expanding the primary market, with recent indications from China's Ministry of Finance pointing to a robust 840 billion yuan in treasury bonds for issuance in Hong Kong this year, marking a 24% year-on-year increase. This momentum will be harnessed to encourage more regular government bond listings while actively promoting the city as a premier hub that connects issuers from mainland China, Southeast Asia, and the Middle East with global investors.
The second key area addresses strengthening secondary market liquidity through the development of the bond repurchase market. Hong Kong authorities are currently exploring a phased approach to introduce central counterparty clearing for bond repos and are developing a dedicated clearing system for this purpose. This infrastructure enhancement is expected to significantly mitigate settlement and systemic risks within the financial ecosystem.
Furthermore, the regulator highlighted that optimizing collateral arrangements is crucial for releasing capital efficiency. While benchmarking against major international markets, Hong Kong has identified room to increase the proportion of non-cash collateral used as margin. Since last year, the OTC Clearing Hong Kong Limited, a subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX) (SEHK: 388), has accepted treasury bonds and policy bank bonds held under Bond Connect as collateral. By the end of August, renminbi-denominated treasury and policy bank bonds deposited by overseas investors accounted for 19% of their total margin collateral, a move that has unlocked funding and expanded the use cases for Chinese bonds.
Looking ahead, these collateral arrangements are set to be extended to the futures and options clearing houses by the end of this year, further boosting the global appeal of the renminbi as an asset class. Driven by the SFC, Hong Kong Exchanges and Clearing Limited has already reduced its fees for using non-cash collateral in margin financing by half to 0.25%. Once the futures and options clearing houses begin accepting treasury bonds as collateral, the exchange operator will consider implementing further reductions in these charges.