Speculating on suitability

Financial institutions are increasingly looking to sell derivatives to small and medium-sized enterprises (SMEs) for hedging. But some SMEs are also using derivatives to speculate, creating problems for both the buy and sell sides. By William Rhode

A number of China- and Hong Kong-based small-to-medium-sized enterprises (SMEs) have been using derivatives - mainly related to Hong Kong's Hang Seng Index - but today they are finding themselves nursing painful losses, due to soaring equity market volatility driven by the US subprime debacle last year.

Elsewhere, the Reserve Bank of India (RBI), the country's central bank, is drafting guidelines on foreign exchange derivatives that are expected to discourage banks from selling products in