The CME Group, one of the world’s largest and more diverse derivatives exchanges, is planning to launch new Chinese renminbi (RMB) FX products. However, this will only happen once CME is convinced that the Asian markets can mitigate operational risk by proving they are able to deliver more automated processing, say senior executives exclusively to Euromoney.
“We are currently tweaking and aligning our RMB future product contracts in Asia for a new launch and looking to launch a number of products, including E-micro forex futures contracts in mainland China, in line with recent liberalization in the Chinese currency,” says Roger Rutherford, managing director and global head of FX products at CME. “However, we are waiting for the market to be ready for the products before releasing them.”
CME Group is the world’s largest regulated FX marketplace in the world, with 51 futures and 31 options contracts available. CME FX volume has averaged approximately 928,000 contracts a day to date in 2010, up 49% on 2009 and reflecting average daily notional value of $120 billion. Europe and Asia provides the CME with the highest growth rates in FX products, and now constitutes 35% of 2010 average daily volume.
CME’s Rutherford and associate director Will Patrick tell Euromoney that the exchange is waiting for the end-to-end process of the market to be suitably automated in order to deal with these trades.
“When we say we are waiting for the market to be ready, we are waiting for the end-to-end process to be streamlined,” says Rutherford. “We can rush these products out, as lots of places do, but we want evidence that the users can handle new products, and are able to connect to automated systems and therefore mitigate operational risk. While we know lots of companies in various countries can install manual processing to deal with these trades, what’s the point in increasing operational risk when these products are meant to hedge risk in the first place?”
China has taken many steps over the years to liberalize the RMB, to enable foreign institutional investment to access the previously difficult to penetrate market. The liberalization will essentially allow foreign entitiesmore freedom to undertake cross-border trade in RMB-denominated financial products.