HKEX Insight

Swap Connect is a cross-border market infrastructure arrangement that allows offshore institutional and corporate investors to trade interest rate swaps referenced to onshore RMB benchmarks, with clearing provided through Hong Kong's OTC Clear.

Swap Connect was launched on 15 May 2023, following joint announcements by the People's Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA). The programme in its current phase operates on a "Northbound" basis.

The infrastructure involves three key components: trading is conducted through the China Foreign Exchange Trade System (CFETS), with clearing delivered on the onshore leg by Shanghai Clearing House (SHCH) and the offshore leg by OTC Clear Hong Kong – an HKEX subsidiary operating as a designated central counterparty (CCP) under Hong Kong's regulatory framework.

This arrangement allows global investors to manage interest rate risk through Hong Kong infrastructure without establishing an onshore legal entity.

International investors hold RMB4.4 trillion in onshore bonds, up from RMB0.8 trillion a decade earlier, according to PBOC data, and, as exposures scale, Swap Connect provides a hedging channel for managing interest rate exposure.

Clearing and risk management under Swap Connect balance access and safety. Trades are executed and matched on CFETS, with OTC Clear – operating as a central counterparty – clearing offshore positions and SHCH clearing onshore. This dual-CCP structure provides internationally recognised risk management while maintaining regulatory oversight in both jurisdictions.

A series of targeted enhancements has played a significant role in driving adoption.

15 May 2023: Programme Launch

Swap Connect goes live with 22 offshore investors participating. First-month clearing volumes approximately RMB66.4 billion. Infrastructure established through CFETS (trading), OTC Clear and SHCH (clearing).

2024: Operational Flexibility Enhancements

First wave of features introduced: forward-start swaps, backdated effective dates and solo compression. Enhancements address trade lifecycle management and balance sheet efficiency needs identified by early participants.

January 2025: Expansion of Acceptable Non-Cash Collateral

China Government Bonds and Policy Bank Bonds held through Bond Connect accepted as margin collateral, improving capital efficiency and linking derivative and cash bond ecosystems. Participants can leverage existing bond holdings for collateral purposes.

June 2025: 30-Year Tenor Added

Longest available tenor introduced to support long-duration hedging strategies for insurance companies, pension funds and other investors with extended liability profiles. Expands product suite to 30-year tenor.

September 2025: LPR Benchmarks & Quota Increase

Loan Prime Rate (LPR) 1-year added as eligible reference rates, enabling hedging of loan-linked exposures. Daily net notional trading quota rose to RMB45 billion, providing additional capacity for market growth. Market feedback indicates positive LPR adoption for specific use cases.

March 2026: Record Monthly Clearing Volume

RMB820.8 billion cleared in a single month.

July 2026: FDR007 Reference Rate Enhancement Planned

The SFC and HKMA announced they expect to add FDR007 as an eligible reference rate for RMB interest rate swaps under Swap Connect. The enhancement, planned for the fourth quarter of 2026, will broaden hedging tools for international investors.

Swap Connect provides access to fixed-for-floating interest rate swaps across a range of benchmarks and tenors, allowing investors to tailor hedging strategies to specific portfolio needs.

Benchmark rates

Participants can trade swaps referenced to four onshore RMB benchmark rates:

• 7-day repo: The benchmark 7-day repo fixing rate based on all interbank repo transactions, broadly reflecting collateralised RMB funding conditions in China's interbank market
• SHIBOR 3-month: The 3-month Shanghai Interbank Offered Rate, representing the unsecured RMB 3-month funding cost quoted by contributing banks
• SHIBOR Overnight: The overnight Shanghai Interbank Offered Rate, representing the unsecured overnight RMB funding cost quoted by contributing banks
• 1-year Loan Prime Rate: The 1-year Loan Prime Rate, China's primary benchmark lending rate for corporate and household loans

Maximum Tenor

Maximum tenor for swaps referencing 7-day Repo and SHIBOR 3-month is up to 30 years, with the 30-year maturity added in May 2025 to support long-duration hedging strategies for institutional investors managing liability-driven investment portfolios.

Liquidity concentration

While the product menu has expanded significantly, market activity remains concentrated in core tenors that align with prevailing hedging needs. The most liquid maturities are 1-year and 5-year FR007 swaps. 

The availability of longer tenors and additional benchmarks expands the strategic toolkit for investors with more complex liability profiles or loan-linked exposures.

Swap Connect has established itself as a core component of RMB market infrastructure, accounting for 13% of the onshore interest rate swap market in Q1 2026, according to SHCH.

And as RMB internationalisation continues, Swap Connect – supported by Hong Kong’s clearing infrastructure – will play a larger role in connecting global capital with China’s onshore derivatives market.