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What is Swap Connect? China’s New Electronic Trading Channel for CNY Interest Rate Swaps

Launched in May 2023, Swap Connect is the world’s first derivatives market access scheme. Through Swap Connect, offshore investors can trade and central counterparty (CCP) clear onshore CNY IRS without changing their existing trading and settlement practices.

International investors have direct trading access to Swap Connect on the Tradeweb platform to execute trades efficiently in the onshore CNY IRS market. IRS trades are cleared through Hong Kong Exchange (HKEX) OTC Clear (OTCC) under Hong Kong’s internationally-familiar legal framework.

Key benefits of electronic trading in Swap Connect include:

  • Improved liquidity and executable size
  • Fund allocation
  • Proof of Best Execution due to electronic workflow and audit trail
  • Pre-trade tools for real-time price intelligence and accurate market data to inform trading decisions and drive improved performance
  • Electronic record keeping to help reduce operational risk through manual input and potential human error

China’s onshore bond market: the second largest in the world

Chinese government bonds (CGB) are now included in major global bond indexes such as the FTSE World Government Bond Index, Bloomberg Global Aggregate Bond Index and JPMorgan GBI-EM Index.

As offshore investors’ exposure to China’s onshore bond market has grown over the past few years, so has their need for risk management tools. Offshore investors have access to offshore interest rate swaps (IRS) but the newly-launched Swap Connect provides access to the onshore CNY IRS market.

Having worked closely with the China Foreign Exchange Trade System (CFETS) to develop and launch Northbound Bond Connect, CIBM Direct Link and Southbound Bond Connect, Tradeweb has again participated in the development of this new electronic trading channel which aims to internationalize CNY IRS.

To find out how Tradeweb can support your China onshore trading strategy, get in touch here.

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