Currency swap trading is a binding obligation between the trading parties that allows the two parties to exchange steams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in RMB and foreign currency periodically at a pre-agreed exchange rate.
The exchange of principal can be made in fours forms: (1) the two parties exchange the principal of two currencies according to the agreed rate on the effective date, and make a reverse deal at the same exchange rate and amount on the termination date; (2) no actual exchange of the principal of two currencies neither on the effective date nor on termination date; (3) exchange of the principal of two currencies only once on either the effective date or the termination date; (4) other forms approved by regulators.
The steams of interest payments mean that the two parties pay interest to each other based on the principal of the currency they swapped. The interest rate can be fixed or floating. Fixed rate is usually quoted in full rate. Floating rate is usually quoted in the form of a contracted reference floating rate plus/minus related spread.
The two parties can negotiate on the currencies, amount of principal, maturity, exchange rate, reference interest rate, mode of principal exchange, mode of interest rate exchange, interest payment cycle and settlement arrangement.
Beijing time: 9:30am-11:30 pm, excluding Chinese statutory holidays.
Method of Clearing & Settlement
The clearing can be done according to the agreement. At present, bilateral clearing is the dominant mode. The interest payment cycle can be weekly, biweekly, triweekly, monthly, bimonthly, quarterly, semiyearly, and yearly.
For switching the currency of assets/liabilities, controlling mismatch risks of currencies, reducing financing costs, and increasing returns on assets.
- Emergency Operating Procedures for the Interbank FX Trading System
- China Foreign Exchange Trade System Product Guide (FX Market) V2.9
- Notice on the Improved Arrangements for Overseas Participating Banks of RMB Purchases and Sales Business and Overseas RMB Clearing Banks to Enter China Interbank FX Market
- CFETS Foreign Currency Lending Membership Application Form