CICC, one of China’s most prominent state-owned brokerages, has stopped clients from adding new positions in cross-border total return swaps. At least three other major state-owned firms followed with similar restrictions.
The move came as the CSI 300 Index hit its lowest since early 2019. Total return swaps let domestic investors gain exposure to offshore stocks without directly moving capital abroad-a brokerage takes the foreign position and passes returns to the client. The total cross-border OTC derivatives book, including these products, stood at 825.4 billion yuan ($114.7 billion) as of late November 2023.
CICC is one of only ten licensed firms for such swaps, giving its decision outsized weight. Regulators had already targeted leveraged derivatives in late 2023; the explicit bans followed in early February 2024 to curb what officials call abnormal market fluctuations. While existing positions can remain, the pipeline of fresh capital flowing offshore through this channel is effectively frozen.
Investors now face fewer routes to international exposure. Alternatives include the limited quotas of the QDII system or Hong Kong-listed shares via Stock Connect programs.