Seven Institutions Deposit More Than 400 Million Yuan in Bonds with HKEX Clearing Houses

Key Facts

HKEX’s two listed-derivatives clearing houses, HKCC and SEOCH, began accepting renminbi-denominated fixed-income holdings as non-cash collateral for margin requirements on November 2, according to an HKEX announcement. On the first day, seven institutions posted eligible bonds worth more than 400 million Chinese yuan as collateral. The move allows participants to use existing assets to meet margin requirements without liquidating them or converting them into cash. HKEX said expanding collateral options supports more efficient liquidity and funding management. The launch brings the mechanism to listed clearing houses after its use in the clearing of over-the-counter transactions.

Eligible assets include Chinese government bonds and policy bank bonds held through the northbound Bond Connect channel, as well as offshore bonds issued by China’s Ministry of Finance. Under the mechanism, these securities can be posted to meet margin requirements while remaining held, instead of being sold to raise cash. HKEX said broadening the range of collateral gives market participants more options and improves the efficiency of liquidity and funding management. This has operational significance for institutions that hold these bonds and also need to meet margin requirements in the derivatives market. The exchange’s announcement did not specify a target for total usage beyond the first day.

Gregory Yiu, HKEX’s head of markets, said extending the use of renminbi bonds as collateral from OTC Clear to listed-derivatives clearing houses "marks another milestone" in strengthening market connectivity. He added that the move supports Hong Kong’s development as a global offshore renminbi centre. HKEX said HKCC and SEOCH are the first listed-derivatives clearing houses outside mainland China to accept Chinese government bonds as collateral. This places listed clearing in Hong Kong within a broader expansion of Chinese bond usage across the city’s financial-market infrastructure. The expansion extends an existing use at OTC Clear, according to Yiu.

HKEX announced on September 25 its plan to accept Chinese government bonds and policy bank bonds held through Bond Connect as non-cash margin collateral starting in November, subject to regulatory approval. The plan also included offshore bonds issued by China’s Ministry of Finance. The exchange said the initiative followed an announcement on July 7 by Hong Kong’s Securities and Futures Commission, the Hong Kong Monetary Authority and the People’s Bank of China that Bond Connect securities would be accepted as eligible collateral for Hong Kong’s derivatives market. In the earlier announcement, Vanessa Lau, HKEX’s chief operating officer, said expanding the assets accepted supports greater flexibility in collateral management and capital efficiency for participants. The start of acceptance on November 2 confirmed the announced plan had moved into implementation.

The mechanism is launching as Chinese manufacturing indicators showed contraction in October. The official Purchasing Managers’ Index was 49.3, compared with 50.1 in September and 49.8 in August, according to figures reported by the Associated Press. The new orders index also fell to 49.4, down 1.1 percentage points from the previous month, according to China’s National Bureau of Statistics. The composite output index dropped to 49.7, one percentage point below September. The readings reflect a decline in activity and demand indicators during the month, alongside the start of bond collateral acceptance in Hong Kong.

New export orders fell to 48.7 in October from 50.0 in September, while the output index dropped to 49.8 from 51.7, according to the comparison reported by the Associated Press. The figures put the orders and output indicators below their readings in the previous month. On trade, the agency said it could be on the agenda for an expected meeting between U.S. President Donald Trump and Chinese President Xi Jinping in mid-November. HKEX shares, trading under the ticker HKXCY, closed at $46.69 on October 30, according to EL7 data. The close came before the announcement that bond acceptance would begin on November 2.