On October 22, in Beijing, the People’s Bank of China (PBOC) announced the first operation of its newly established Securities, Funds, and Insurance Company Swap Facility (SFISF).
According to a statement released by the central bank on the evening of October 21, the operation involved an amount of 50 billion yuan and utilized a rate bidding method. A total of 20 institutions participated in the bidding process, which saw the highest bid rate at 50 basis points and the lowest at 10 basis points, with the final winning rate set at 20 basis points.
Previous reports had indicated that the initial scale of the SFISF operation would be set at 500 billion yuan. As of October 18, 20 securities and fund companies were authorized to participate in the swap facility operations, with the first batch of applications exceeding 200 billion yuan.
An industry expert commented to the China News Service that the 50 billion yuan announced for the first official operation marks only the beginning of the program, and is part of the previously mentioned overall quota of 500 billion yuan and the 200 billion yuan in initial applications. The expert noted that the PBOC plans to conduct operations in stages based on the demands of participating institutions.
Looking ahead, the expert anticipated that the central bank would continue to conduct operations strategically based on market trends and institutional needs, determining operation amounts accordingly. Once the cumulative operation volume reaches the 500 billion yuan cap, there may be a consideration to further expand the scale of these operations.
To facilitate the smooth commencement of the first operation, the PBOC registered its first swap facility central bank notes for trading and circulation at the Shanghai Clearing House on October 18. China International Capital Corporation (CICC) has already successfully used these notes to carry out its initial financing.
Experts in the field explained that the swap facility central bank notes can be traded in the interbank market, thereby optimizing the existing financial infrastructure and supporting institutional operations across different markets.
In the first operation, the central bank also exchanged government bonds based on the needs of institutions, with those operations still ongoing. It was noted that the central bank had coordinated with relevant departments to facilitate the cross-market transfer of government bonds it held, ensuring the smooth progression of future operations.
The swap facility represents a significant innovation in the central bank’s toolkit, aimed at better managing liquidity across different markets. Traditionally, the central bank has acted as the “lender of last resort” for banks, providing ample liquidity support in times of bank runs. However, with the evolution of financial markets and the diversification of residents’ asset allocations, there is a growing need for the central bank to provide liquidity to capital markets when necessary.
“This launch of the swap facility is an experimental attempt to support monetary policy in the capital markets and is beneficial in improving the overall liquidity environment for non-bank institutions,” the industry expert remarked, suggesting that moving forward, the central bank should refine these tools on an experimental basis to better coordinate liquidity distribution across different markets, thereby enhancing the inherent stability of the capital markets.
Zhang Jian, Vice Chairman and General Manager of Shenwan Hongyuan Securities, expressed to the media that with the initial scale set at 500 billion yuan, he believes there would be additional amounts of 500 billion yuan or even more in the future. He views this as a significant boost to market confidence, essentially providing a trillion-level enhancement for the capital markets.
According to Zhang, this boost in confidence is expected to have a sustained pulse-like uplifting effect on the capital markets, enhancing market activity as non-bank financial institutions continue to participate, ultimately benefiting all parties involved in the capital market.
