This circular explains the regulatory capital and reporting treatments for assets posted by authorized institutions (AIs) for participating in Swap Connect, an arrangement that allows overseas and Mainland investors to participate in financial derivatives markets in Mainland and Hong Kong. Hong Kong Exchanges and Clearing Limited and Shanghai Clearing House have partnered to provide clearing services under Swap Connect and will face each other as principal. In the initial stage, Northbound Trading for interest rate swaps will commence first. The participating margin should be treated in the same manner as default fund contributions under the Banking (Capital) Rules, with a separate capital charge calculated and reported in the Capital Adequacy Ratio return. The details of these treatments are explained in the Annex to the circular.
Annex: https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2023/20230508e1a1.pdf Annex: https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2023/20230508e1a1.pdf