Hong Kong outlines new liquidity reforms amid capital outflow pressure

Key facts

• Hong Kong's SFC is introducing reforms to enhance market liquidity.
• Measures include extended trading hours and shorter settlement cycles.
• The reforms aim to counter capital outflows driven by US equity rallies and a strong dollar.
• The RMB Business Facility has been expanded to RMB 500 billion.
• The HKMA will introduce a tendering mechanism for seven-day offshore RMB liquidity.
• HKEX will launch an Offshore RMB Bond Index.

Hong Kong's securities regulator is pushing forward with new reforms aimed at boosting market liquidity and retaining capital amid global economic shifts. Julia Leung, CEO of the Securities and Futures Commission (SFC), announced these initiatives at a conference organized by the Asian Securities & Financial Markets Association (Asifma) on Friday.

The reforms come as emerging markets face pressure from capital outflows, exacerbated by a rally in US equities and a strengthening US dollar. The SFC's proposed measures include extending trading hours and shortening settlement cycles to make the market more efficient and attractive.

Further details from the SFC's "Project Liquidity" document reveal a commitment to enhancing Hong Kong's status as an international financial center. This includes deepening its global offshore Renminbi (RMB) business and capital market, developing an international asset and wealth management center, and expanding fixed income and commodity trading.

Specific initiatives include expanding the RMB Business Facility to RMB 500 billion, with loan tenors extended up to three years, to support wider RMB use and radiate funds to regions like ASEAN, the Middle East, and Europe. The Hong Kong Monetary Authority (HKMA) is also exploring enhancements to the Currency Swap Agreement with the People's Bank of China to bolster offshore RMB market liquidity. Additionally, the HKMA plans to introduce a tendering mechanism for seven-day offshore RMB liquidity and explore issuing offshore RMB short-term debt instruments. The HKEX is set to launch an Offshore RMB Bond Index, and the SFC is preparing for the inclusion of RMB counters under the Southbound Trading of Stock Connect.