The People’s Bank of China (PBC) Shanghai Head Office, China Development Bank, Export-Import Bank of China, state-owned commercial banks, Postal Savings Bank of China, joint-stock commercial banks, Bank of Beijing, Bank of Ningbo, Bank of Hangzhou, Bank of Jiangsu, Bank of Shanghai, Huishang Bank, Bank of Nanjing, Bank of Guangzhou, Bank of Luoyang, Bank of Zhengzhou, Bank of Changsha, Zhongyuan Bank, Bank of Qingdao, Xiamen Bank, Guiyang Bank, Bank of Xi’an, Qilu Bank, Standard Chartered Bank (China) Ltd., HSBC Bank (China) Co., Ltd., Citibank (China) Co., Ltd., MUFG Bank (China), Ltd., the National Interbank Funding Center, China Central Depository & Clearing Co., Ltd., the National Association of Financial Market Institutional Investors, Shanghai Clearing House, and Cross-Border Interbank Payment System Co., Ltd.,
To regulate the launch of Southbound Trading under the mutual bond market access and connection scheme between the Mainland and Hong Kong (hereinafter referred to as “Southbound Bond Connect”), facilitate institutional investors in the mainland bond market (hereinafter referred to as “mainland investors”) to gain exposure to global bonds in an orderly manner, and promote the steady two-way opening-up of China’s bond market at a high level, and in accordance with the Law of the People’s Republic of China on the People’s Bank of China and other relevant laws and regulations, this Notice is hereby issued regarding the following matters on Southbound Bond Connect:
1. In this Notice, Southbound Bond Connect refers to an arrangement that will enable mainland investors to invest in the Hong Kong bond market through connections in bond trading, custody, settlement, and other related activities between the Mainland and Hong Kong infrastructure service providers.
In this Notice, infrastructure service providers refer to institutions recognized by the PBC and the Hong Kong Monetary Authority (HKMA) to provide mainland investors and overseas investors with bond registration, custody, depository, trading, clearing, settlement, and other financial infrastructure services. Infrastructure service providers include bond market infrastructures and depository and clearing banks in the Mainland and Hong Kong.
2. Unless otherwise provided in this Notice, Southbound Bond Connect is subject to the laws and regulations currently in force in the Mainland and Hong Kong; related trading and settlement activities are subject to the regulatory rules and market rules of the place where such activities take place.
3. Mainland investors that meet the requirements specified by the PBC may invest through Southbound Bond Connect in all bonds issued overseas and traded in the Hong Kong bond market. Counterparties are tentatively limited to market makers designated by the HKMA.
Mainland investors are tentatively limited to select primary dealers of open market operations recognized by the PBC. Qualified Domestic Institutional Investors (QDIIs) and RMB Qualified Domestic Institutional Investors (RQDII) may also invest in overseas bonds through Southbound Bond Connect.
4. Mainland electronic trading platforms recognized by the PBC may connect to overseas trading platforms to provide trading services for Southbound Bond Connect.
5. Each mainland bond registration and depository institution recognized by the PBC shall open a nominee holder account with a Hong Kong bond registration and depository institution recognized by the HKMA for the purpose of keeping track of the outstanding amount of all bonds it holds on behalf of mainland investors.
Mainland depository and clearing banks recognized by the PBC shall establish connections with Hong Kong bond registration and depository institutions or Hong Kong depository banks to provide bond depository and settlement services for mainland investors.
6. Mainland investors may choose at their sole discretion to deposit bond assets with mainland bond registration and depository institutions or mainland depository and clearing banks.
Mainland investors choosing mainland bond registration and depository institutions shall conclude transactions with their counterparties via mainland electronic trading platforms and make payments for bond transactions via the Cross-Border Interbank Payment System.
7. Mainland investors may subscribe for overseas bonds through Southbound Bond Connect. Mainland and Hong Kong infrastructure service providers shall make sound institutional arrangements and connection for this process.
8. Mainland investors may participate in Southbound Bond Connect with either the RMB or foreign currencies, but these funds can only be used for bond investment.
Mainland investors shall not engage in foreign exchange arbitrage through Southbound Bond Connect. Mainland investors who invest in foreign currency-denominated bonds may exchange the RMB into foreign currencies and hedge currency risks in the interbank foreign exchange market. Any mainland investor that has no further investment plans after the maturity or sale of the bonds it holds shall repatriate the proceeds to the Mainland and exchange them into the RMB.
9. The net cross-border capital outflow under Southbound Bond Connect shall not exceed the annual aggregate quota or the daily quota. The annual aggregate quota for Southbound Bond Connect is currently RMB500 billion or the equivalent, and the daily quota is currently RMB20 billion or the equivalent.
10. Mainland and Hong Kong infrastructure service providers shall keep truthful, accurate, complete, and timely records of the bond trading, custody, settlement, and other detailed data and information of mainland investors and overseas investors.
The PBC Shanghai Head Office shall establish a sound market surveillance mechanism for Southbound Bond Connect and track the usage of quotas in a timely and accurate way. Mainland and Hong Kong infrastructure service providers, mainland investors, and overseas investors shall report relevant data and information to the PBC Shanghai Head Office as required by transaction reporting rules. Mainland infrastructure service providers and mainland investors shall make balance of payments declarations in accordance with the relevant statistical and declaration rules.
11. The PBC regulates mainland investors’ participation in Southbound Bond Connect in accordance with laws, and continuously improves the regulatory cooperation mechanisms for promoting the mutual access between the Mainland and Hong Kong bond markets together with HKMA, to jointly protect the legitimate rights and interests of mainland investors and overseas investors in cross-border investment.
12. The PBC regulates the exchange of funds, outward and inward remittance, information reporting, and other activities of mainland investors under Southbound Bond Connect together with foreign exchange administrative authorities in order to guard against any misconduct of mainland investors through Southbound Bond Connect.
13. Mainland infrastructure service providers shall, in accordance with this Notice, develop detailed rules or operating procedures for Southbound Bond Connect, which shall be implemented upon approval of the PBC.
14. This Notice takes effect on September 24, 2021.
The People’s Bank of China
September 14, 2021
