News and Deals
News and Deals
Linklaters advised Hong Kong Exchanges and Clearing Limited (HKEX) on the design, drafting of documentation for, and the regulatory and legal issues on taking CGBs as collateral, which was effective from Monday 13 January 2025.
In general, CGBs held via Bond Connect are subject to certain limitations such as non-trade transfer restrictions and single-custodian requirement, which made using such Bond Connect securities less practical for scalable collateral uses. The design and solutions devised for OTCC help to overcome such limitations, which enable the CGBs to be taken as Swap Connect collateral on a scalable basis, unleashing the potential of CGBs as liquidity tools and achieving costs savings on margin for OTCC participants.
This signifies the evolution of CGBs as a treasury management and collateral liquidity tool in the international markets. When these refinements are tested as Swap Connect collateral, they may be extended for general use outside the Connect programmes and may have the potential to revolutionise the role of CGBs in the international markets.
The Linklaters team was led by Asia Head of Structured Finance and Derivatives Chin-Chong Liew, with support from structured finance and derivatives counsel Simon Zhang and solicitor Shirley Chan. Zhao Sheng Law Firm provided PRC law support to HKEX in relation to this project – consolidating Linklaters’ long-standing reputation for providing seamlessly integrated Chinese and international legal advice to clients through its joint operation in China. The Zhao Sheng team was led by capital markets partner Ying Zhou and supported by associate Yvette Bao.
Linklaters’ Asia Head of Structured Finance and Derivatives Chin-Chong Liew commented:
“This project exemplifies the ongoing innovation in financial market infrastructure, with the potential to set a new precedent for the role of CGBs globally. We are proud to have played a pivotal role in advising HKEX on this landmark development, enabling greater scalability and cost efficiency in collateral use for the participants of OTC Clearing Hong Kong Limited.
Our team is excited to continue to be involved in market-changing developments, deepening the connectivity between mainland China and international markets. We welcome discussions with market participants on the implications of using CGBs held via Bond Connect for Swap Connect collateral purposes.”
Leveraging the extensive experience and deep understanding from advising on the establishment of the China Connect Schemes – including Stock Connect, Bond Connect, ETF Connect and Swap Connect – as well as the setting up of OTCC, Linklaters Zhao Sheng provides comprehensive advice to clients on all aspects of China Connect Schemes.