China Tightens Grip on Cross-Border Swaps: Implications for Global Investments

Several Chinese brokerages have restricted clients from making fresh investments in cross-border swaps, in line with Beijing's efforts to curb capital outflows. Clients can only maintain or sell existing positions. This move affects major players like China International Capital Corp and reflects increasing scrutiny on overseas investments, particularly through TRS contracts.

A number of Chinese brokerages have imposed restrictions on clients wishing to engage in fresh investments through cross-border swaps, sources revealed on Wednesday. The move is perceived as part of Beijing's ongoing efforts to control capital outflows and scrutinize overseas investments more closely.

Institutional clients were informed on Tuesday evening that they would not be able to add new overseas investment exposure via total return swaps (TRS) contracts. Investors are now limited to maintaining or scaling back their existing positions, according to sources who spoke on condition of anonymity due to the sensitive nature of the information.

Regulators had previously restricted the total amount domestic investors could allocate to swaps in February 2024, suggesting a continuous tightening of policies. The latest restrictions have affected at least four brokerages, including state-owned China International Capital Corp (CICC), a prominent player in the field. CICC has not yet responded to requests for comment.