![Risk.net](https://www.risk.net/sites/default/files/styles/print_logo/public/2018-09/print-logo.png?itok=1TpHrpuP)
China bond forwards represent move to more open market
The start of trading in bond forwards in China is a necessary step towards a more open market, but underlying markets are still too illiquid to allow other derivatives to be traded, said HSBC treasurer for China David Liao.
Any licensed bank or corporation can now trade bond forwards with a contract length of less than 365 days, so long as the size of the contracts falls within a limit set by the buyer's own capital strength. But further classes of derivatives will probably have to wait for the underlying market to evolve, Liao said.
"The key to the success of China's financial market is to promote a liquid and representative underlying market. I expect the primary focus by regulators would be to continue to work on the liquidity of existing markets, such as the government bond market, People's Bank of China bill market and money market," Liao told RiskNews. "Once these markets are liquid and representative, you would have a useful foundation to build credible fixings for a swap market, credit spreads for corporate bonds, etc," he added.
The opening up of the bond futures market follows the publication last year of the China Banking Regulatory Commission's long-awaited derivatives regulations. The new rules mean that licensed local and foreign banks can trade derivatives on their own account. Previously, derivatives could only be used for hedging and not for speculative purposes.
The regulations also allow foreign banks to carry out business with domestic corporate clients in China. Previously, they could only trade foreign-currency denominated derivatives with Chinese institutions that had appropriate foreign exchange licenses (See: Asia Risk, September 2004, page 32; December, page 6)).
However, despite the new regulatory framework, the situation is still not entirely clear, said Liao. "The derivatives regulation stipulated by the China Banking Regulatory Commission (CBRC) specifies that license holders can trade derivatives for profit. However, the environment for a derivatives market in China is not entirely clear, as corresponding regulations for insurance companies, securities companies and funds are governed under different regulatory bodies, and have yet to appear," he said. "Products are also governed under different regulators, so the process to obtain approval is still unclear for cases where, for example, a bank (governed under CBRC) tries to structure an overseas equity index product (governed by the China Securities Regulatory Commission)."
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Exchanges
Asia’s ETF assets on the rise – HKEX presents the results of Asia ETF survey 2019
Asia’s total ETF assets surged by 23.9% in the first half of 2019 thanks to an increasing adoption of ETFs into investment portfolios. According to a survey conducted by Hong Kong Exchanges and Clearing (HKEX), asset expansion in Asia’s ETF market is set…
NYSE Offers Exchange-Calculated Bitcoin Index, with More to Come
NYXBT will initially be based off data from Coinbase Exchange.
Deutsche Börse to set up Europe's first multi-asset RMB platform
German exchange group signs joint venture deal with CFFEX and Shanghai Stock Exchange
Exchange Revenue Figures Rise, Fall; Data Revenues Continue Steady Increase
A mostly positive mix of Q1 results also yield big increases in data revenues for some exchanges.
Lift-off for ASX Aussie dollar swap clearing business
Volumes jump following revamp of Sydney bourse's clearing incentive scheme
Exchange Data Revenues Make Positive Start to 2015
Acquisitions made up for some shortfalls in exchange revenues
CME looks to local banks for FX liquidity in emerging markets
Chicago-based exchange targets China, India and LatAm growth