China's central bank conducts first swap facility transaction

The People's Bank of China, the country's central bank, has launched the first operation of a new swap facility aimed at boosting stock market liquidity, with the first stock buying transaction financed through the facility on Tuesday.

The PBOC will continue to conduct facility operations in batches, as necessary, and will expand the size of the facility based on the actual situation after the initial 500 billion yuan ($70.2 billion) quota is achieved, informed sources said.

First unveiled by PBOC Governor Pan Gongsheng on Sept 24, the Securities, Funds and Insurance companies Swap Facility, or the SFISF, enables financial institutions to swap less liquid securities with the central bank for more liquid treasury bonds and central bank bills, which can then be used as collateral for obtaining lending to invest in the capital market.

On Tuesday, China International Capital Corporation Limited said it had purchased shares via the funding obtained from the SFISF for the first time, without disclosing the size of the purchase, and will continue to boost shareholdings using the funding.

This followed PBOC's announcement on Monday night that it had conducted the first SFISF operation worth 50 billion yuan, through a tendering process involving 20 financial institutions at the winning bid rate of 20 basis points.

The central bank also listed the first batch of central bank bills aimed at enabling the facility on Friday. The CICC gained the financing for share purchase by pledging with the central bank bills.

Informed sources said the PBOC is expected to carry out further SFISF operations at a proper time and size, based on market trends and demand from financial institutions. "Once the cumulative operation amount reaches the 500 billion yuan cap, the PBOC will expand the scale of operations based on the actual situation."

In the first SFISF operation, the PBOC also swapped out treasury bonds to meet the demand from financial institutions, with related operations still underway, sources said.