The operator of Hong Kong’s stock exchange, Hong Kong Exchanges and Clearing Limited (HKEX), is preparing to offer renminbi currency options through a USD/CNH contract in Q1 2018, amid growing demand to hedge currency risk arising from a more volatile yuan.
The step effectively makes HKEX the third international clearing house to provide exchange-traded options on the US dollar/offshore RMB pair, which reinforces Hong Kong’s overall position as the premier offshore renminbi centre.
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The product will be based on offshore US dollar-yuan rates cleared in Hong Kong and would launch amid growing demand for tools to hedge currency risks that arise from a more volatile yuan.
The Hong Kong bourse said that the new product will allow investors to employ trading and hedging strategies for various market conditions. It would also limit counterparty risk, with HKEX acting as central clearing counterparty. In addition, the operator of the Hong Kong’s stock and futures markets will facilitate block trades and tenor coverage up to 16 months.
The new contract is a follow-up to forex products launched by the HKEX in recent months including USD/CNH futures and other RMB currency futures. The move was aimed at expanding Hong Kong bourse futures market as the country has signaled its ambition to become an offshore yuan trading canter.
Commenting on the news, Julien Martin, Head of Fixed Income and Currency Product Development, said: “RMB Currency Options are part of our efforts to provide a full range of RMB-related derivatives to take advantage of our unique opportunity to help entrench Hong Kong as a gateway for cross-border fund flows and a risk management centre in connection with the internationalisation of the RMB. The introduction of Currency Options will provide investors with a tool to execute more trading strategies.”