Several Mainland Chinese Private Funds Receive Notification to Suspend Cross-Border TRS Expansion

BlockBeats News, June 24th - Several mainland Chinese private equity professionals revealed that they had received consecutive notices from their partner brokers last night, stating that regulatory authorities had requested a suspension of any new cross-border Total Return Swap (TRS) arrangements. According to public information, a TRS is a financial derivative that allows private equity firms to gain exposure to overseas assets without holding them directly (no outflow of principal). Through an agreement with a counterparty broker, the private equity firms can receive the returns (or losses) of the asset. Due to the outstanding performance of the global technology sector this year, many private equity firms have used cross-border TRS to allocate to overseas assets.

Since May, the China Securities Regulatory Commission and seven other departments jointly issued the "Implementation Plan for the Comprehensive Rectification of Illegal Cross-Border Securities and Futures Fund Management Activities," cracking down on top cross-border internet brokers such as Tiger Brokers, Futu Holdings, and Chang Bridge Securities. As mainland Chinese residents' space for illegally participating in overseas stock trading has shrunk, private equity products using cross-border TRS to allocate to overseas tech assets have attracted more attention. Several private equity professionals revealed: "The related notice was quite sudden, and some product strategies may undergo some short-term changes. Currently, we are awaiting further clarification on the regulation of cross-border TRS quotas."