China launches first monetary policy tool to support capital market

BEIJING -- China's central bank announced Thursday that it has decided to set up Securities, Funds and Insurance companies Swap Facility (SFISF), with the initial scale of 500 billion yuan (about $71 billion) for "the healthy and stable development of the capital market."

The SFISF, which is the first monetary policy tool created by China to support the capital market, will allow eligible securities, funds and insurance companies to use their assets including bonds, stock ETFs and holdings in constituents of the CSI 300 Index as collateral in exchange for highly liquid assets such as treasury bonds and central bank bills, the People's Bank of China said in a statement.

The scale of the SFISF could be expanded depending on the development of the situation, according to the central bank.

Starting Thursday, applications from eligible securities, funds and insurance companies will be accepted.

As a long-term institutional arrangement, the SFISF is conducive to enhancing the resilience of China's capital market and curbing herd behavior and other pro-cyclical actions, thus helping maintain market stability, authoritative sources were quoted by Xinhua's financial newspaper, China Securities Journal, as saying.

The new tool can also boost the participation of non-bank institutions, improve the transmission efficiency of monetary policy in the capital market, and contribute to the balanced development of bond, stock and other markets, according to the sources.

The SFISF is a swap of assets and will not expand the scale of base currency issuance, the China Securities Journal report noted.