Eligible Bond Connect Securities Collateral

Overview

OTC Clearing Hong Kong Limited (“OTC Clear”) is pleased to announce that Chinese Government Bonds and Policy Bank Bonds in the China Interbank Bond Market traded via Bond Connect (collectively named as Eligible Bond Connect Securities) are accepted as eligible collateral since Q1 2025.

This above-mentioned enhancement will help to improve capital efficiency of investors in the programme by offering them more non-cash collateral options. It will also further boost the attractiveness of holding onshore RMB bonds for international investors participating in Bond Connect and promote RMB internationalisation.

Eligible Bond Connect Securities Collateral Arrangement

Margin Collateral Account Opening Flow

Clearing Member (House Account)

	Eligible Bond Connect Securities Collateral’s Account Opening Process	Operational Forms
1	Clearing Member submits request to OTC Clear for Margin Collateral Account Setup.	OTC Clear Non-Cash Collateral Account Set-up Form
2a	Upon receipt the request from Clearing Member, OTC Clear to submit form to CMU for Margin Collateral Account setup in CMU for the clearing member.	CMU Form T.13a
2b	Clearing Member ’s Bond Connect custodian to submit form to CMU for Margin Collateral Account setup in CMU.	CMU Form T.13b
3	CMU to process Margin Collateral Account set up upon receipt of two forms (Form T13a and T13b) from OTC Clear and Clearing Member’s Bond Connect custodian.
4	Clearing Member can start to deposit Eligible Bond Connect Securities upon the exchange of Standing Settlement Instruction (SSI) with OTC Clear.

	Eligible Bond Connect Securities Collateral’s Account Opening Process	Operational Forms	Involved Parties

Client of Clearing Member (Client Account)

	Eligible Bond Connect Securities Collateral’s Account Opening Process	Operational Forms
1	Clearing Broker submits request to OTC Clear for Margin Collateral Account Setup.	OTC Clear Non-Cash Collateral Account Set-up Form
2a	Upon receipt the request from Clearing Broker, OTC Clear to submit form to CMU for Margin Collateral Account setup in CMU for the Clearing Broker’s client.	CMU Form T.13a
2b	Client’s Bond Connect custodian to submit form to CMU for Margin Collateral Account setup in CMU.	CMU Form T.13b
3	CMU to process Margin Collateral Account set up upon receipt of two forms (Form T13a and T13b) from OTC Clear and Client’s Bond Connect custodian.
4	Client can start to deposit Eligible Bond Connect Securities upon the exchange of Standing Settlement Instruction (SSI) with OTC Clear.

	Eligible Bond Connect Securities Collateral’s Account Opening Process	Operational Forms	Involved Parties

Eligible Bond Connect Securities Collateral Frequently Asked Questions

_{The FAQ are designed to provide general information about the Eligible Bond Connect Securities in OTC Clear. For details, please refer to OTC Clear Rules and Procedures}

Background and Documentation Requirements

Q1	What is the new measure on margin collateral arrangement related to Eligible Bond Connect Securities?
A	Starting from 21 March 2025, OTC Clear accepts Chinese Government Bonds and Policy Bank Bonds in the China Interbank Bond Market traded via Bond Connect (collectively named as “Eligible Bond Connect Securities”) as margin collateral for all OTC Clear products. This will enhance the utility of RMB-denominated assets in the market, help build the RMB ecosystem and solidify Hong Kong as an offshore RMB center.
Q2	How can Eligible Bond Connect Securities be used to cover OTC Clear margin requirements?
A	A CM will be able to provide Eligible Bond Connect Securities as margin collateral to satisfy IM requirements of all OTC Clear transactions, for its House Position Account and Client Clearing Category 1 Position Accounts^. _{ A Client Clearing Category 1 Position Account is a book-keeping account opened by a CM with OTC Clear in order to book contracts in respect of its Client Clearing Services provided to a single client only (Individual Segregation Account). Please note OTC Clear will not accept CM to provide Eligible Bond Connect Securities collateral to satisfy IM requirements in respect of a Client Clearing Category 2 Position Account (Omnibus net segregation).}
Q3	What is the custodian arrangement for Eligible Bond Connect Securities?
A	The Central Moneymarkets Unit (“CMU”) will continue to be the dedicated offshore central securities depository (“CSD”) for Eligible Bond Connect Securities as per current Bond Connect arrangement. OTC Clear will set up a segregated Margin Collateral Account for each CM and each client at CMU for holding their Eligible Bond Connect Securities posted as collateral.
Q4	What is the documentation requirement for posting Eligible Bond Connect Securities collateral to OTC Clear?
A	For House business, same as current practice in providing other types of non-cash collateral (i.e. UST, EFBN and MOFB), CM must execute a Deed of Charge for House Collateral Account with OTC Clear and provide Eligible Bond Connect Securities as margin collateral to OTC Clear by way of security interest. For Client Clearing business, the Clearing Broker must (i) execute a Deed of Charge for the Client Collateral Accounts with OTC Clear to provide Eligible Bond Connect Securities as margin collateral to OTC Clear by way of security interest, and (ii) enter into a Client Clearing Agreement with the provisions that any non-cash collateral shall be provided by way of full title transfer from the client to the Clearing Broker (Please refer to OTC Clear Rules 817). This is to ensure the Clearing Broker has the full title of the Eligible Bond Connect Securities collateral posted for their Client Collateral Accounts under the principal model when client’s Eligible Bond Connect Securities are being directly transferred from the client to OTC Clear.

Deposit and Withdrawal of Eligible Bond Connect Securities Collateral

Q5	How to instruct the transfer of Eligible Bond Connect Securities from CM’s / client’s Bond Connect custodian account to OTC Clear account in CMU?
A	CM shall submit non-cash collateral deposit request via OASIS (“Web Portal”) before 17:00 HKT on an OTC Clear Clearing Day with settlement date value next CMU settlement day. CM shall refer to the Web Portal on the deposit request status around 18:00 HKT. If the deposit request is accepted by OTC Clear, CM or its clients shall instruct their Bond Connect custodian to transfer the Eligible Bond Connect Securities to the designated Margin Collateral Account setup by OTC Clear in CMU. The margin balance of the CM or its clients will be updated upon OTC Clear receiving the settlement confirmation from CMU. The transfer shall be instructed on Free of Payment (“FOP”) basis.
Q6	How to instruct the withdrawal of Eligible Bond Connect Securities collateral from OTC Clear account to CM’s / client’s Bond Connect custodian account in CMU?
A	CM shall submit non-cash collateral withdrawal request via Web Portal before 12:00 HKT noon on an OTC Clear Clearing Day with settlement date value on the next CMU settlement day. CM shall refer to the Web Portal on the withdrawal request status at around 13:00 HKT. Once the withdrawal request is accepted by OTC Clear, CM and/or its clients shall instruct their Bond Connect custodian to receive Eligible Bond Connect Securities from the designated Margin Collateral Account setup by OTC Clear in CMU. The transfer shall be instructed on FOP basis.

Collateral Haircut

Q7	Is there any collateral haircut on Eligible Bond Connect Securities collateral?
A	OTC Clear will value non-cash collateral receiving from CMs in its base currency (i.e. Hong Kong Dollar). Similar to other non-cash collateral, different haircut rates are applied to Eligible Bond Connect Securities collateral according to their asset types and remaining time to maturity. Same as the current practice, OTC Clear performs a monthly routine haircut review and adjustment on monthly basis and inform the CMs through circular. Please refer to Eligible Collateral for OTC Clear webpage for the haircut rates apply to Eligible Bond Connect Securities collateral.

Is there any collateral haircut on Eligible Bond Connect Securities collateral?

OTC Clear will value non-cash collateral receiving from CMs in its base currency (i.e. Hong Kong Dollar). Similar to other non-cash collateral, different haircut rates are applied to Eligible Bond Connect Securities collateral according to their asset types and remaining time to maturity. Same as the current practice, OTC Clear performs a monthly routine haircut review and adjustment on monthly basis and inform the CMs through circular.

Please refer to Eligible Collateral for OTC Clear webpage for the haircut rates apply to Eligible Bond Connect Securities collateral.

Reporting

Q8	Is there any report showing the Eligible Bond Connect Securities collateral posted by the CM or its client?
A	CM can refer to “WEB IM Collateral” report (RMRP06) and “WEB IM Collateral_C” report (RMRP07) for the Eligible Bond Connect Securities posted for its house and client’s position respectively.

Corporate Action Handling of Eligible Bond Connect Securities

Q9	What happens if there are upcoming coupon payments from the Eligible Bond Connect Securities collateral?
A	While operationally OTC Clear recommends CM to substitute their bonds prior to corporate action events, in case CM does not substitute the non-cash collateral from OTC Clear before the scheduled coupon payment date, OTC Clear will pass on the coupon to CM after receiving it from sub-custodian, i.e. CMU. CMs and its clients shall refer to the “WEB IM Collateral” report (RMRP06) or “WEB IM Collateral_C” report (RMRP07) published on Web Portal for the next scheduled coupon payment date of each security comprising each CM or its client’s non-cash collateral.
Q10	What happens if there are upcoming maturity payments from the Eligible Bond Connect Securities collateral?
A	CMs must substitute Eligible Bond Connect Securities collateral from its Margin Collateral Account no later than 5 business days prior to scheduled maturity date. In case redemption proceeds are credited to a CM or its client’s Margin Collateral Account setup by OTC Clear, such redemption proceeds will be subject to the terms of the relevant Deed of Charge and treated as having an applicable haircut of 100 per cent. No interest will be paid by OTC Clear in respect of such redemption proceeds and CM is required to submit a request to effect the withdrawal of such proceeds.

Fee

Q11	What is the fee of posting Eligible Bond Connect Securities collateral?
A	Existing charges and accommodation fee (i.e. 0.15% per annum) for non-cash collateral will be applicable to Eligible Bond Connect Securities collateral. CMs can refer to “WEB Monthly Fees” report (STRP07) and “WEB Monthly Fees II” report (STRP08) published on Web Portal on every 5^th business day of the month for the details of the fees.

Q11

What is the fee of posting Eligible Bond Connect Securities collateral?

Existing charges and accommodation fee (i.e. 0.15% per annum) for non-cash collateral will be applicable to Eligible Bond Connect Securities collateral.

CMs can refer to “WEB Monthly Fees” report (STRP07) and “WEB Monthly Fees II” report (STRP08) published on Web Portal on every 5^th business day of the month for the details of the fees.

Liquidation

Q12	What happens to the Eligible Bond Connect Securities collateral when the relevant CM default?
A	OTC Clear will arrange the liquidation of Eligible Bond Connect Securities collateral, if needed, via its appointed liquidation agent, Hong Kong Securities Clearing Company Limited (“HKSCC”), and apply the sale proceeds for the absorption of losses incurred by OTC Clear as a result of the default of a CM.

Press Release

Launch Circular