(Yicai) Oct. 10 -- The People's Bank of China unveiled the country's first monetary policy tool supporting the capital market, with an initial size of CNY500 billion (USD70.8 billion).

The PBOC has created the Securities, Funds and Insurance companies Swap Facility, or SFISF, for "the healthy and stable development of the capital market," the central bank announced today. The funds acquired via the tool can only be invested into the stock market and its scale can be expanded depending on the development of the situation, it added.

The SFISF will allow eligible securities, funds, and insurance companies to use assets, including bonds, stock exchange-traded funds, 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 PBOC noted, adding that it has begun accepting applications.

The SFISF lasts up to one year and allows for renewals upon expiry, according to people close to the PBOC. The operating flexibility indicates that the tool will have a huge space to play its role in the future, they noted, adding that the central bank will carry out operations via specific tier-one traders, with China Bond Insurance potentially being one.

The Chinese mainland stock market has performed poorly this year due to the impact of various factors, leading to an unstable mood and damaged confidence among some investors. On Sept. 24, PBOC Governor Pan Gongsheng said the lender would create a swap tool soon.

The SFISF enables non-banking institutions to substitute their assets of poorer liquidity for government bonds and central bank bills to facilitate buybacks or fundraisers through sales, according to experts. It will not increase base money supply and does not belong to quantitative easing as it only involves swaps of different kinds of securities, they pointed out.

Based on the Term Securities Lending Facility, a similar tool the US Federal Reserve launched during the subprime mortgage crisis in 2008, swap tools can play a key role in stabilizing the financial market, the experts noted.

Editors: Xu Wei, Martin Kadiev