The Hong Kong Monetary Authority (HKMA) has announced enhancements to the offshore RMB bond repurchase (repo) business to facilitate Northbound Bond Connect investors’ participation, centred on allowing rehypothecation of bond collateral during the repo period and enabling cross-currency repo settlement beyond RMB. Under the new arrangements, repo collateral may be re-used during the repo period for offshore repo transactions, as collateral for the HKMA’s RMB Liquidity Facility, as margin collateral at OTC Clearing Hong Kong Limited (OTCC), and for cash bond trading through Northbound Bond Connect, subject to applicable rules for each use case. Repo settlement will support RMB, HKD, USD and EUR. The “latest arrangements” confirm that participating institutions include all existing Northbound Bond Connect investors (CMU members and offshore investors with CMU sub-accounts via Hong Kong custodian banks that are CMU members), eligible collateral covers bonds held under Northbound Bond Connect and bonds acquired through offshore repo transactions regardless of bond type, and each repo must involve at least one of the 11 HKMA-designated Primary Liquidity Providers as a counterparty. Transactions may be executed bilaterally over-the-counter, via Bond Connect infrastructure linkage, or through offshore or onshore electronic trading platforms, with settlement completed under the Central Moneymarkets Unit (CMU) Repo Service. Market makers must report same-day repo transaction data to the HKMA for monitoring, with reporting requirements and submission channels to be finalised. The enhancements are scheduled to launch on 25 August 2025. CMU will announce operational details for bond transfer and settlement separately, and the timeline for CMU’s tri-party repo service to support rehypothecation will be notified in due course; rehypothecation is currently limited to repo transactions settled under a delivery-versus-payment model.

Original source View in tracker