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HK's RMB business to expand
HONG KONG: Hong Kong is set to launch retail RMB non-deliverable forward (NDF) contracts in a bid to expand Hong Kong's role as the financial hub for RMB business and provide small investors with a tool to hedge against the value fluctuation of the RMB. The contracts will be offered for a minimum of US$10,000, for 1,2,3,6 and 12 months. The RMB NDF is currently offered on the Singapore and Tokyo markets. NDFs allow investors to buy or sell an agreed amount of RMB at a pre-set delivery date. They have become popular instruments, providing investors with a tool to hedge against the risk of the value of the RMB fluctuating. The move in Hong Kong is seen as catering for the financial needs of small and medium-sized enterprises (SMEs), given the small minimum subscription. Seven banks HSBC, DBS Hong Kong, Standard and Chartered Bank (Hong Kong), Royal Bank of Scotland, Bank of China (Hong Kong), Fubon Bank and Citibank have been designated by the Hong Kong Monetary Authority (HKMA) to offer the service. At the moment, Singapore accounts for 80 per cent of the RMB NDF trading market with 15 per cent in Tokyo and 5 per cent in Hong Kong. In contrary to those in Singapore, NDF contracts offered in Hong Kong have a standard document setting out the contracts, including settlement arrangements. For RMB NDFs traded in Singapore, the maturity and market price of a contract is individually negotiated between offering banks and investors. Product specifications and documentation will be reviewed from time to time by the Treasury Markets Forum (TMF), the think tank of Hong Kong's financial industry. "We believe the introduction of retail RMB NDF contracts will provide a useful tool for SMEs, particularly those with investments on the mainland, to manage their currency risk exposures," said Anita Fung, chairman of the TMF's Market and Product Development Sub-Committee. Dong Tao, chief economist at Credit Suisse First Boston (CSFB), agreed with the move, because Hong Kong has been lagging behind in the race to explore the derivative market of the RMB business compared with Singapore and Tokyo. He said the local market lacks this kind of tool allowing investors to hedge against the risk of RMB fluctuation. "However, owing to the restrictions of the capital market, it will be fairly difficult for the Hong Kong banking industry to offer other derivative products for RMB business than the RMB NDF at this stage," Tao noted. Raymond So, associate professor of the Chinese University of Hong Kong's Department of Finance, welcomed the move, but noted: "The contribution of the RMB NDF contract to consolidate Hong Kong market as the global hub of RMB business is minimal. Hong Kong should turn itself into the centre for global enterprises to raise RMB denominated bonds," So stressed.
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