The Shanghai Clearing House ("SHCH") and the China Foreign Exchange Trade System ("CFETS") have recently issued the Circular on Launching the Business of Foreign Currency Repurchase Pledged with Domestic Bonds (the "Circular").
According to the Circular, to satisfy the market demands for reducing the costs of foreign currency financing, unleashing the line of credit and further diversifying the foreign currency financing instruments, the CFETS and the SHCH are about to roll out on December 16, 2019 the business of foreign currency repurchase pledged with domestic bonds under the SHCH's custody, as well as the related clearing business. With regard to trading arrangements, the Circular clarifies the business categories, scope of eligible pledged collaterals, trading manner, trading transmission, and trading hours, and as to the clearing arrangements, deals with the clearing confirmation, settlement modes, settlement arrangements, and settlement hours. In terms of settlement modes, the Circular makes it clear that the payment after delivery (PAD) and the delivery after payment (DAP) are acceptable. Specifically, for the pledge-style repurchase, the PAD is acceptable on the initial settlement date while the DAP is acceptable on the settlement date upon maturity; but for outright repurchase, PAD or DAP is acceptable both on the initial settlement date and on the settlement date upon maturity.