Tradeweb Connects to China’s Cfets through Bond Connect Program

Bond Connect will start northbound trades initially, with southbound trades to follow. Investors will now have the advantage of having pre-trade transparency through composite prices, which were not previously available. Previously, most investors would interact through an onshore bond settlement agency and through voice, rather than electronic, methods.

Tradeweb’s managing director and head of Asia, Li Renn Tsai, says the electronic fixed income, derivatives and exchange-traded funds marketplace provider has been involved in the construction, design and architecture of Bond Connect for around two years.

On May 16, the People’s Bank of China and the Hong Kong Monetary Authority (HKMA) announced Bond Connect, giving mutual access between the Hong Kong and mainland bond markets through a cross-border platform. The program is similar to Stock Connect, launched in 2014, which allows for equity trading between mainland and offshore investors, linking the Shanghai Stock Exchange and the Hong Kong Stock Exchange.

Eligible institutional investors will be able to trade directly with mainland liquidity providers using Tradeweb’s interface to connect to the China Foreign Exchange Trade System (Cfets) trading system. Bond Connect will allow investors to discover prices, submit orders and trade permissible onshore debt instruments.

China’s bond market has an outstanding amount of about 65 trillion yuan (approximately $9.5 trillion) with less than two percent held by overseas investors. Northbound trading will start initially, meaning that overseas investors will be able to trade in the China Interbank Bond Market while southbound trading is expected to be allowed in short order.

“The Bond Connect will allow investors to trade directly with onshore participating dealers both directly and electronically. It is a disclosed RFQ (request for quote) from one up to 10 parties,” says Tsai. “Investors can seek liquidity from a panel of 20 onshore dealers, with more in the pipeline, and then choose between one to 10 of them. The dealers will come back with prices that the investors can interact with. Once they have accepted the price, the transaction is done immediately.”

Investors will now have the advantage of having pre-trade transparency through composite prices, which were not previously available. Previously, most investors would interact through an onshore bond settlement agency and through voice, rather than electronic, methods.

With Bond Connect, offshore investors will also no longer be forced to choose an onshore custodian. Instead, they will be able to access via HKMA’s Central Moneymarkets Unit (CMU). CMU will handle account opening procedures and compliance requirements at the China Central Depository and Clearing Company, and Shanghai Clearing House.

“Investors just have to go to their custodian, set up a Bond Connect account and their offshore custodian will take care of that process. There are two sides to Bond Connect—the transparent and efficient trading link, and the offshore settlement link. Combined together, this is what makes Bond Connect such a unique and powerful proposition,” says Tsai.

He says Tradeweb will continue to add features to the Bond Connect platform that is already available in developed products such as US Treasurys, European government bonds and Japanese government bonds.

“We are one of the leading government bond-trading platforms in the world, so we will take a lot of that type of intellectual property that we have in terms of product and apply that to the Bond Connect, based on client demand,” he said.