Business / Markets

Brisk trading on first day of HK yuan futures

By Oswald Chen (China Daily) Updated: 2012-09-18 10:31

The city's first deliverable yuan currency futures contract traded on the Hong Kong Exchanges and Clearing Ltd made its debut on Monday with the 415 contracts traded recording a total notional turnover of $41.5 million.

The HKEx's yuan currency futures contracts, each with a contract size of $100,000, are based on the exchange rates between the yuan and the US dollar. There are 7 contract months for investors to choose to suit their time-horizon needs in hedging. The settlement will be made through the delivery of US dollars against the yuan with the full principal amount as the final settlement price.

The three most actively traded expiries were quarterly expiries in December 2012 (82 contracts), June 2013 (80 contracts) and March 2013 (72 contracts).

"It is a good first step for our currency futures market, and a very significant milestone for HKEx. We are pleased to see good market depth and bid-offer spreads," said HKEx's Head of Trading Calvin Tai in a statement.

The new yuan-denominated derivative product will provide mainland institutions, qualified foreign institutional investor fund managers, mainland and overseas companies engaging in cross-border trade settlements, as well as foreign institutions who want to make direct investments on the mainland, with a financial tool to hedge the yuan currency fluctuation risk.

Other worldwide stock operators are also gearing up to cater for the demand in yuan currency futures trading. The US largest exchange operator, Chicago-based CME Group Inc also announced last week that it will launch deliverable offshore yuan currency futures in the US in the fourth quarter of 2012 and in Europe in the second quarter of 2013, in a bid to tap the currency's increased demand in overseas markets.

"Certainly there will be market demand for yuan currency futures in the city driven by the institutional investors' need to hedge the yuan currency exposure in their investment portfolios," said Simon Luk, a director at Capital Focus Asset Management, which specializes in mainland asset management industry.

"Due to the geographical proximity to the mainland, the financial institutions and enterprises in Hong Kong should have a greater need to hedge their currency exposure positions in the yuan currency," Luk said.

"The yuan currency futures traded on the HKEx platform requires less capital amount enabling local small and medium enterprises to hedge their yuan currency exposures by using less capital outlay," Bruce Wong, research director with local foreign exchange analyst firm Plotio Bullion (Hong Kong) Ltd told China Daily.

"The yuan currency will become more recognized in cross-border settlements, market optimism is favorable toward yuan-denominated assets, and market demand for yuan currency futures will build up gradually in future," Wong added.

However, Capital Focus' Luk cautioned that the yuan currency futures may become a speculative financial tool for some investors who want to utilize the futures to generate quick profits.

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