Hong Kong is taking another major step to bolster its position as the global hub for offshore RMB. Hong Kong Exchanges and Clearing Limited (HKEX) has announced that its clearing subsidiary, OTC Clear, will now accept China Government Bonds (CGB) and Policy Bank Bonds as collateral for all derivatives transactions. This strategic move is set to enhance the liquidity and accessibility of RMB-denominated assets in the international market.

What Does This Mean for Global Investors?
Starting today, OTC Clear is accepting CGB and Policy Bank Bonds as margin collateral for Northbound Swap Connect transactions. By the end of Q1 2025, this will extend to all other derivatives traded through OTC Clear. The shift is part of a broader initiative to integrate RMB assets into the global financial ecosystem and reduce the barriers for international investors looking to participate in RMB-denominated markets.

For global institutions, this means a more efficient, cost-effective way to manage collateral in derivatives transactions, thanks to the added flexibility in collateral options. As Mr. Liang Zhongxian, Executive Director of the SFC's Market Supervision Department, explained,

"This initiative will make it easier for global investors to use their onshore RMB bonds as non-cash collateral, significantly lowering liquidity costs and further positioning Hong Kong as a leading offshore RMB center."

Why Should You Care?
The new rules offer tangible benefits for international investors:

Increased Flexibility: With the inclusion of CGB and Policy Bank Bonds as collateral, investors can leverage high-quality onshore RMB assets for derivative trading.

Cost Efficiency: Using RMB bonds as margin collateral reduces liquidity costs, offering a more economical way to participate in global derivatives markets.

Enhanced Market Access: This change creates a stronger bridge between onshore and offshore RMB markets, allowing for more seamless cross-border investments.

Hong Kong's Role in the Global Financial Landscape
This expansion of collateral options aligns with Hong Kong's broader goal of fostering the internationalisation of the RMB. By accepting CGB and Policy Bank Bonds for a wide range of derivatives, OTC Clear is facilitating smoother, more efficient trading for international investors. This move is likely to attract even more global capital, further strengthening Hong Kong's position as the leading financial gateway between China and the world.

In sum, this development is not just a regulatory shift; it's a game-changer for investors looking to capitalise on China's growing role in global financial markets.