On October 21, the People’s Bank of China (PBOC) announced the initiation of its first cross-swap operation for securities, funds, and insurance companies, involving a total amount of 50 billion yuan, approximately 7 billion dollars. This marks the first instance of the previously announced 500 billion yuan (about 70 billion dollars) quota that allows for direct investments in the Chinese stock market.
The swift implementation of these pro-growth policies by the Chinese government has drawn attention. This cross-swap tool was first introduced during a press conference with key financial regulators on September 24, the decision to establish it was made on October 10, and the tool officially launched on October 18. Remarkably, the timeframe from the initial proposal to the official rollout was less than a month.
The cross-swap facility (SFISF) operates as a monetary policy tool, allowing eligible securities, fund, and insurance companies to use assets such as bonds, stock ETFs, and shares from the CSI 300 index as collateral in exchange for high-quality liquid assets like government bonds and central bank bills. This operational method is colloquially known as “swapping securities for securities.” Currently, the swap period is set to one year, with the possibility of extensions, while the swap rates are determined through a bidding process among participating institutions.
According to the announcement from the PBOC, these measures aim to enhance the stabilizing role of securities and funds in the market. The bidding process saw participation from 20 institutions, with the highest bidding rate at 50 basis points and the lowest at 10 basis points, ultimately settling on a winning rate of 20 basis points.
Reports from domestic media outlets like Jiemian News and First Financial indicate that CICC has executed the first pledged repurchase transaction under the cross-swap facility, using the PBOC’s first phase central bank bills for 2024 as collateral.
On October 18, the PBOC stated that 20 securities and fund companies had been approved to participate in the cross-swap operations, with initial application quotas exceeding 200 billion yuan. Simultaneously, the PBOC and the China Securities Regulatory Commission jointly issued a notification outlining the business processes, operational elements, and the rights and obligations of both parties involved.
Yao Zeyu, the chief analyst for non-bank finance and financial technology at CICC, remarked, “The cross-swap operations are flexible and specifically targeted, expected to provide efficient financing channels for financial institutions while precisely directing liquidity into the capital markets.”
