HKMA Enhances Offshore RMB Bond Repo Business for Greater Market Efficiency

The Hong Kong Monetary Authority (HKMA) has unveiled a series of enhancements to the offshore RMB bond repurchase (repo) business, aimed at facilitating Northbound Bond Connect investors and aligning practices with international standards. This announcement, made on July 8, 2025, reflects HKMA’s commitment to fostering a more efficient and integrated financial market.

Rehypothecation of Bond Collaterals

A key feature of the enhancements is the introduction of rehypothecation for bond collaterals during the repo period. Previously, bond collaterals acquired by participating institutions were locked and managed by the Central Moneymarkets Unit (CMU) platform, prohibiting their reuse. The new policy allows these collaterals to be reused in 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 via Northbound Bond Connect. This move is expected to optimize collateral usage, reduce financing costs, and enhance liquidity management efficiency.

Cross-Currency Repo Support

In addition to rehypothecation, the HKMA will support cross-currency repo settlements, allowing transactions to be settled not only in RMB but also in HKD, USD, and EUR. This enhancement is designed to broaden participating institutions’ funding options, thereby enriching their liquidity management tools and increasing the appeal of onshore RMB bonds.

Enhancing Market Depth and Efficiency

The implementation of these enhancements is set for August 25, 2025. The HKMA anticipates that these measures will expand the offshore repo market’s depth and breadth, improve the market-based mechanism for offshore RMB liquidity management, and broaden the use of onshore RMB bonds as collateral in the offshore market.

Operational Arrangements

The HKMA has detailed the latest arrangements for offshore RMB repo transactions. All existing Northbound Bond Connect investors, including CMU members and offshore investors with sub-accounts through Hong Kong custodian banks, can participate. Eligible bonds include those held under Northbound Bond Connect and those acquired through offshore repo transactions, irrespective of bond type.

The 11 Primary Liquidity Providers designated by the HKMA will serve as market makers for these transactions, ensuring each repo transaction involves at least one market maker. Transactions can be conducted bilaterally over-the-counter, via existing Northbound Bond Connect transaction mechanisms, or through electronic trading platforms.

Data Reporting and Market Monitoring

Market makers are required to report transaction data to the HKMA on the day of the transaction for monitoring purposes. The HKMA will continue to engage with the industry to refine reporting requirements and ensure smooth market operations.

These enhancements are part of HKMA’s broader strategy to support the robust and sustainable development of the offshore RMB business. For more information, visit the Hong Kong Monetary Authority.

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