HKEX Gets Approval to Launch Four New Renminbi Currency Futures

HKEX to launch 4 new RMB futures as China's currency becomes globalized.

Euro, Japanese yen, United States dollar, and Australian dollar futures will be launched against the Chinese renminbi (CNH or offshore RMB) by Hong Kong Exchanges and Clearing (HKEX) which today announced that it received regulatory approval to offer the four new RMB currency futures set to go live on May 30th, 2016.

The cash-settled EUR/RMB, JPY/RMB and AUD/RMB will trade in renminbi, and the RMB/USD futures will be priced in US dollars, and all of them are aimed at appealing to hedgers and the risk-management needs of traders seeking exposure in China’s emerging currency as well as serving the capital efficiency of exchange-traded futures, as per the HKEX update.

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Hong Kong efficiencies

HKEX noted that although the products are planned for launch on the 30th of May, no after-hours trading will occur on that date due to the bank holiday in the UK and US. Finance Magnates reported when the company first revealed the plans in April, with regulatory approval announced barely a month later.  Hong Kong’s regulator also announced plans with FINRA last week regarding cross-border regulatory synergies, after the SFC’s CEO was appointed to chair IOSCO’s board.

The block trade capability of the new contracts were highlighted by HKEX as providing the flexibility of an over-the-counter (OTC) contract yet with minimal counterparty risk and with dedicated liquidity providers to make bid-ask spreads competitive.

The euro-RMB contract will be for 50,000 euros, the yen-RMB contract will be based on 6,000,000 yen, and the AUD-RMB for 80,000 AUD. All of these will be priced in RMG and have a minimum tick price of 0.0001 RMB. The RMB-USD contract will be for 300,000 RMB and priced in USD with a minimum tick of USD 0.0001 (i.e. 1 pip) and cash-settled in USD. The complete contract specifications can be found on the HKEX’s product description.

In related news, China’s currency was discussed by central bankers last week at the RMB FX Forum, as the currency continues to become globalized.

Globalization of RMB

 

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We welcome the steps that have been taken that have already significantly increased the role of the RMB in global financial markets.

 

Last week at the RMB FX Forum in Beijing, Assistant Governor for Financial Markets of the Reserve Bank of Australia (RBA), Guy Debelle, explained that the RMB currency is becoming a global currency and could even take out the Australian dollar from its top five positions – in terms of volumes – when the next BIS triennial survey is released later this year.

Guy Debelle Source: RBA
Guy Debelle
Source: RBA

Mr. Debelle added during the speech how the RBA has invested a large portion of its holdings into RMB in recent years, and mentioned China’s participation (along with 14 other central banks) in the Global FX Code that he chairs along with Simon Potter of the Federal Reserve Bank of New York, who is leading the work, and with Chris Salmon of the Bank of England, as per a BIS transcript.

Global FX Code and China

“Australia has a deep interest in following the ongoing liberalisation of China’s financial markets and internationalisation of the RMB, given the strong linkages between the two economies. We welcome the steps that have been taken that have already significantly increased the role of the RMB in global financial markets,” remarked Mr. Debelle during the speech in Beijing.

“As the FX market in China becomes increasingly integrated into the global FX market, I would hope that the Global Code of Conduct for the FX market that is to be released (in part) next week can serve as a useful benchmark for the functioning of the FX market in China as much as we intend it to be for the global FX market.”

Mr. Debelle obtained a PhD from MIT under the guidance of Stanely Fischer and Rudi Dornbusch, and subsequently worked for the IMF, and BIS, among other prominent roles held within the highest places in foreign exchange before taking on his current position with the RBA.

His work directly affects the FX market at the highest level, along with other leading central bankers involved with the global FX code, including the CLS Group which further strengthened its board today.

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