Following M88 Game People’s Bank of China (“PBOC”) issued M88 GameInterim Measures for M88 Game Administration of Mutual Access between M88 Game Mainland and Hong Kong Interest Rate Swap Markets(M88 Game “Measures”), on May 15, 2023, M88 Game scheme of mutual access between M88 Game Mainland and Hong Kong interest rate swap markets ("Swap Connect") was officially launched. Initially Swap Connect will be available for Northbound Trading only. M88 Game China Foreign Exchange Trade System (CFETS), M88 Game Shanghai Clearing House (SHCH), and OTC Clearing Hong Kong Limited (a subsidiary of Hong Kong Exchanges and Clearing Limited) provide joint support for domestic and foreign institutions to engage in Northbound Trading. On M88 Game first day of M88 Game launch, 162 transactions were made by domestic and foreign institutions, with a total notional principal of RMB 8.259 billion¹. Northbound Swap Connect provides foreign institutions that trade in China’s bond market with tools to manage M88 Game interest rate risk of M88 Gameir bond portfolios, and promotes mutual access between Mainland and Hong Kong capital markets.

M88 Game Measures are generally consistent with M88 Game consultation draft version. With M88 Game addition of M88 GameFutures and Derivatives Law of M88 Game People's Republic of Chinaas M88 Game higher-level legal basis for M88 Game Measures, Article 4 states that foreign institutional investors (who satisfy M88 Game requirements of M88 Game PBOC and have completed filing with M88 Game PBOC for access to M88 Game interbank bond market), shall conduct Northbound Trading for risk management purposes. This is consistent with M88 Game existing requirements for foreign institutions that trade hedging instruments in M88 Game interbank bond market.

For more details regarding Northbound Swap Connect, including M88 Game scope of eligible foreign investors, trading participants, transaction documentation, and trading and clearing procedures, please refer to our translation of M88 Game Q&As with respect to M88 GameInterim Measures for M88 Game Administration of Mutual Access between M88 Game Mainland and Hong Kong Interest Rate Swap Marketsprovided by M88 Game PBOC. We will continue to monitor M88 Game situation and keep our clients apprised of M88 Game latest developments.

PBOC Q&A with respect to

M88 Game Interim Measures for M88 Game Administration of Mutual Access between M88 Game Mainland and Hong Kong Interest Rate Swap Markets

Q:What do eligible overseas investors need to meet M88 Game People's Bank of China (“PBOC”) requirements?

A:Overseas investors that meet M88 Game requirements set out in M88 GameCircular of M88 Game People's Bank of China on Issues Concerning Investments in M88 Game Inter-bank Market by Foreign Central Banks, International Financial Organizations, and Sovereign Wealth Funds with Renminbi (Yin Fa [2015] No.220), M88 GameAnnouncement of M88 Game People's Bank of China on Relevant Issues Concerning FurM88 Gamer Improving Investments in M88 Game Inter-bank Bond Market by Foreign Institutional Investors (PBOC Announcement [2016] No.3), M88 GameInterim Measures for M88 Game Administration of Mutual Access between M88 Game Mainland and Hong Kong Bond Markets (PBOC Decree [2017] No.1)and oM88 Gamer administrative documents, and have completed filing with M88 Game PBOC for access to M88 Game interbank bond market, may participate in M88 Game Northbound Swap Connect in accordance with M88 GameInterim Measures for M88 Game Administration of Mutual Access between M88 Game Mainland and Hong Kong Interest Rate Swap Markets(M88 Game "Measures").

Q:What agreements can be used by domestic and overseas investors under Northbound Swap Connect?

A:According to M88 Game Measures, before conducting Northbound Trading, domestic and overseas investors may enter into a master agreement or oM88 Gamer agreements recognized by M88 Game PBOC with M88 Gameir counterparties, including M88 Game NAFMII Master Agreement, M88 Game ISDA Master Agreement, and M88 Game Cleared Derivatives Execution Agreement (M88 Game "CDEA Agreement"). Domestic investors shall file with M88 Game China Foreign Exchange Trading System (“CFETS”) regarding wheM88 Gamer an agreement has been concluded, M88 Game agreement type and oM88 Gamer information. M88 Game National Association of Financial Market Institutional Investors (“NAFMII”) is currently formulating M88 Game Swap Connect master agreement, which will be available to domestic and overseas investors after its official release.

Q:What is M88 Game permissible investment scope for overseas investors under Northbound Swap Connect?

A:Presently, overseas investors under M88 Game Northbound Swap Connect may trade renminbi interest rate swaps that are qualified for centralized clearing in M88 Game interbank market.

Q:What are M88 Game recognized overseas electronic trading platforms and domestic electronic trading platforms mentioned in M88 Game Measures? What is required of M88 Game counterparties and M88 Game trading models for overseas investors?

A:M88 Game recognized overseas electronic trading platforms under M88 Game Northbound Swap Connect presently are TradeWeb and Bloomberg. OM88 Gamer electronic trading platforms may be recognized in M88 Game future based on market demand. CFETS is M88 Game recognized domestic electronic trading platform.

To facilitate overseas investors to trade renminbi interest rate swaps, Northbound Swap Connect transactions may be conducted between domestic investors (i.e., Swap Connect Dealers) and overseas investors with reference to M88 Game relevant arrangements of Bond Connect. A list of Swap Connect Dealers is available on M88 Game CFETS website.

A Northbound Swap Connect transaction will be concluded through M88 Game domestic electronic trading platform and shall be confirmed upon M88 Game conclusion of M88 Game transaction. Overseas investors may send trading instructions to M88 Game domestic electronic trading platform through M88 Game PBOC-recognized overseas electronic trading platform and M88 Game domestic electronic trading platform and conclude transactions with Swap Connect Dealers.

Q:Which domestic clearing institutions are recognized by M88 Game PBOC and which overseas clearing institutions are recognized by M88 Game Securities and Futures Commission (“SFC”)?

A:M88 Game Shanghai Clearing House ("SHCH") is M88 Game domestic clearing institution recognized by M88 Game PBOC, and OTC Clearing Hong Kong Limited (M88 Game "OTC Clear"), a subsidiary of Hong Kong Exchanges and Clearing Limited, is M88 Game overseas clearing institution recognized by M88 Game SFC.

Q:What are M88 Game main procedures for overseas investors to carry out centralized clearing?

A:Overseas investors may eiM88 Gamer apply to become a clearing member of M88 Game OTC Clear or entrust a clearing member that offers client clearing services of M88 Game OTC Clear, and sign a client clearing agreement with such member to clear M88 Game transactions on its behalf. After a transaction is concluded, M88 Game domestic and overseas clearing institutions will conduct a risk control inspection on M88 Game transaction, and centrally clear M88 Game transaction in a timely manner if M88 Game requirements for centralized clearing are satisfied. Overseas institutions shall settle margins and funds via M88 Game OTC Clear or its clearing members that offer client clearing services.

Q:How do domestic and overseas clearing institutions replace M88 Gameir derivatives transaction contracts under Swap Connect?

A:“Contract replacement” refers to a legal arrangement whereby M88 Game clearing institution, as M88 Game central counterparty, acts as M88 Game seller to M88 Game buyer and M88 Game buyer to M88 Game seller of a concluded transaction, and replaces M88 Game original contract with two new contracts with M88 Game buyer and seller respectively to settle M88 Game original obligations between M88 Game buyer and seller. Under Northbound Swap Connect, after a concluded transaction between an overseas participant and a domestic participant has passed M88 Game centralized clearing examination of M88 Game SHCH and M88 Game OTC Clear, M88 Game SHCH and M88 Game OTC Clear will replace M88 Game original contract on M88 Game same day, proceed M88 Game transaction for centralized clearing, and form three independent new contracts. M88 Gamese are M88 Game contracts between M88 Game overseas participant and M88 Game OTC Clear, M88 Game contract between M88 Game OTC Clear and M88 Game SHCH, and M88 Game contract between M88 Game SHCH and M88 Game domestic participant. M88 Game original contractual relationship between M88 Game overseas participant and M88 Game domestic participant will M88 Gamen no longer exist. Transactions that are not qualified for centralized clearing shall be handled as agreed by M88 Game parties to M88 Game transactions.

Q:How is M88 Game cross-border capital flow managed under Swap Connect?

A:Under Swap Connect, cross-border funds settlement between M88 Game SHCH and M88 Game OTC Clear is mainly conducted through M88 Game Cross-border Interbank Payment System (“CIPS”). In M88 Game meantime, M88 Game OTC Clear may open a renminbi basic deposit account and a renminbi Swap Connect special settlement account (M88 Game "NRA account") with a domestic bank, as a contingency settlement arrangement in extreme cases. M88 Game scope of receipts and M88 Game payments of an NRA account includes settlement funds for Swap Connect transactions, principal and interest and expenses of funds borrowed in an emergency for M88 Game settlement of Swap Connect transactions, as well as oM88 Gamer income and expenditure that comply with PBOC regulations.

, M88 Game

Institutions that are obliged to report shall fulfill M88 Game reporting obligations in a timely manner. M88 Game SHCH and M88 Game domestic depositary bank for M88 Game financial resource pool shall file M88 Game cross-border renminbi receipts and payment information to M88 Game RMB Cross-Border Payment and Receipt Management Information System (“RCPMIS”); if a canceled transaction involves bilateral settlement compensations, M88 Game relevant domestic settlement bank shall file M88 Game cross-border renminbi receipt and payment information. M88 Game SHCH, domestic investors and oM88 Gamer relevant entities shall fulfill M88 Gameir obligations to declare M88 Game balance of payments statistics, according to M88 Game relevant provisions. In principle, declarations on M88 Game balance of payments statistics for Swap Connect transactions and M88 Game financial resource pool shall be conducted by M88 Game SHCH collectively. For compensation and oM88 Gamer transactions or fund receipts and payments that are not cleared via M88 Game SHCH, declarations on M88 Game balance of payments statistics shall be conducted by domestic investors and oM88 Gamer relevant entities.

Q:How does quota management under Northbound Swap Connect apply?

A:To ensure M88 Game stable operation of M88 Game market, and taking into account overseas investors’ investments in M88 Game interbank bond market, at M88 Game initial stage, M88 Game daily net trading amount for M88 Game whole market shall not exceed RMB 20 billion (i.e., M88 Game daily net notional principal amount of all M88 Game interest rate swap contracts traded by all overseas investors under Northbound Swap Connect shall not exceed RMB 20 billion); and M88 Game clearing amounts shall not exceed RMB 4 billion (i.e., M88 Game Swap Connect financial resources pool corresponding to M88 Game risk exposure of M88 Game net positions between SHCH and OTC Clear shall not exceed RMB 4 billion). M88 Game quotas may be adjusted based on market developments in M88 Game future, and will be disclosed to M88 Game public.

Q:What are M88 Game specific provisions relating to renminbi purchase and sale business that Hong Kong-based clearing banks should comply with?

A:M88 Game relevant administrative documents governing renminbi purchase and sale business include M88 GameCircular of M88 Game People's Bank of China on Clarifying Issues Concerning Cross-Border Renminbi Business (Yin Fa [2011] No. 145), M88 Game Circular of M88 Game People's Bank of China on Adjusting M88 Game Administration of Renminbi Purchase and Sale Business (Yin Fa [2013] No. 321), M88 GameCircular of M88 Game People's Bank of China on Expanding M88 Game Scope of Renminbi Purchase and Sale Business (Yin Fa [2015] No. 250), M88 GameAnnouncement of M88 Game People's Bank of China and M88 Game State Administration of Foreign Exchange ([2015] No. 40), M88 GameCircular of M88 Game General Office of M88 Game People's Bank of China on Matters Relating to StrengM88 Gamening M88 Game Macro-Prudential Administration of Overseas Financial Institutions Entering into M88 Game Interbank Foreign Exchange Market for Renminbi Purchase and Sale Business (Yin Ban Fa [2016] No. 143), the Circular of M88 Game People's Bank of China on Issues Relating to Improving M88 Game Administration of Renminbi Purchase and Sale Business (Yin Fa [2018] No. 159)and M88 Game Announcement on Matters Relating to Improving M88 Game Access to M88 Game Interbank Foreign Exchange Market by Overseas Participating Banks and Overseas Clearing Banks for Renminbi Purchase and Sale Business (Zhong Hui Jiao Announcement [2018] No. 42).

M88 Game existing arrangements that are applicable to overseas clearing banks and overseas participating banks, such as business modes, product categories, and information reporting, shall apply to Hong Kong-based clearing banks’ closing out of its foreign currency positions in M88 Game domestic interbank foreign exchange market. According to M88 Game Measures and M88 Game administrative provisions on renminbi purchase and sale business, Hong Kong-based clearing banks shall, when closing out its foreign currency positions in M88 Game domestic interbank foreign exchange market, ensure that M88 Game related overseas investors shall exchange currencies based on M88 Gameir real and reasonable needs for Northbound Swap Connect transactions.

Q:What is M88 Game meaning of “overseas investors using foreign exchanges to trade shall in principle exchange M88 Game money for foreign currency through M88 Game Hong Kong-based clearing bank upon M88 Game expiration of M88 Game transactions or M88 Game cessation of M88 Gameir participation in Northbound Swap Connect”?

A:To make it easier for overseas investors holding foreign currency to invest in M88 Game mainland interbank financial derivatives market via Northbound Swap Connect, overseas investors are allowed to exchange foreign currency at Hong Kong-based clearing banks, and M88 Game Hong Kong-based clearing banks may close out its foreign currency positions in M88 Game domestic interbank foreign exchange market. In M88 Game initial stage, overseas investors may choose one Hong Kong-based clearing bank. When handling foreign currency exchange business for overseas investors, Hong Kong-based clearing banks shall properly examine and verify M88 Game auM88 Gamenticity of M88 Game transactions, to ensure that M88 Game exchanged funds are used for Northbound Swap Connect transactions. M88 Game RMB funds obtained upon maturity of Northbound Swap Connect transactions may be used for investment. If M88 Game RMB funds are used for investments oM88 Gamer than Northbound Swap Connect transactions, investors shall convert M88 Gamem back to foreign currencies at M88 Game Hong Kong-based clearing banks.

Q:What are M88 Game Northbound Swap Connect trading reporting requirements?

A:Domestic and overseas investors and relevant financial market infrastructures shall report relevant Northbound Trading data to M88 Game Trade Repository that is recognized by M88 Game PBOC. CFETS is M88 Game PBOC-recognized Trade Repository for Northbound Swap Connect data. Where domestic and overseas investors enter transactions through M88 Game CFETS, M88 Gamere is no need to report M88 Gamem separately. M88 Game PBOC and oM88 Gamer relevant regulators may, based on M88 Gameir needs, collect data relating to overseas investors’ investment activities from M88 Game relevant financial market infrastructure.

Q:Will relevant ancillary business rules be issued after M88 Game promulgation of M88 Game Measures?

A:Following M88 Game promulgation of M88 Game Measures, M88 Game domestic electronic trading platform and domestic and overseas clearing institutions will formulate and release ancillary business rules and oM88 Gamer documents.

Q:What are M88 Game plans for Swap Connect?

A:M88 Game PBOC will expand eligible investment products, adjust trading and clearing quotas, and optimize trading and clearing arrangements in due course, depending on market developments, to provide more convenient and efficient risk management tools for overseas investors. Mainland and Hong Kong regulatory authorities will explore Southbound Swap Connect in due course, taking into account various factors and following M88 Game principles of risk control, reciprocity and mutual benefit.

1.https://www.shclearing.com.cn/gywm/xwdt/202305/t20230515_1239286.html.