Several Chinese Private Equity Firms Informed to Suspend New Cross-Border TRS

On June 24, several private equity professionals in mainland China revealed that they received notifications from their partner brokerages last night, stating that regulators have required a suspension of new cross-border Total Return Swap (TRS) scales for managers. According to public information, TRS, or Total Return Swap, is a financial derivative that allows private equity firms to gain returns (or losses) from assets without directly holding foreign assets (with principal not leaving the country) by signing return swap agreements with counterpart brokerages. This year, due to the impressive performance of the global technology sector, many private equity firms have allocated overseas assets through cross-border TRS. Since May, the China Securities Regulatory Commission and seven other departments jointly issued a plan for the comprehensive rectification of illegal cross-border securities, futures, and fund operations, targeting leading cross-border internet brokerages such as Tiger Brokers, Futu Holdings, and Changqiao Securities. As the space for mainland residents to engage in illegal cross-border stock trading shrinks, private equity products using cross-border TRS to invest in overseas technology targets have increasingly attracted funding attention. Several private equity professionals noted, 'The related notification was quite sudden, and some product strategies may experience short-term changes. We are currently waiting for further clarification on the cross-border TRS quota regulations.'