FIA Asia eMarketBeat
Futures Industry Association Asia
Volume 02, Number 4, May 12, 2009
Please direct all feedback on the FIA Asia eMarketBeat to Nick Ronalds.
Top Stories
FIA Asia Co-Hosts Beijing Seminar May 16
FIA Asia will co-host a seminar in Beijing with the Beijing Futures Association May 16 at the Presidential Hotel. Themes of the seminar will include the future of China’s futures in a crisis era and the likely path of liberalization for China’s futures markets. Delegates will include officials and specialists from financial regulatory agencies, executives of Chinese FCMs and institutional users of futures, private investors, and technology professionals. The event will be supported by the China Financial Futures Exchange, the Shanghai Futures Exchange, the Dalian Commodity Exchange, the Zhengzhou Commodity Exchange, the Shanghai Stock Exchange, and the Shenzhen Stock Exchange.
Go here for the brochure on the event. To register, go here
China and Taiwan Sign MOU on Regulatory Cooperation
China and Taiwan signed a memorandum of understanding April 26 intended to increase financial interaction between the two Chinese regions, the Wall Street Journal reported April 27. The most dramatic development will be the opening of Taiwan to mainland investors in as little as two months. To facilitate financial flows a foreign exchange clearing and settlement system will be created. A comprehensive agreement covering banking, brokerage, insurance and other financial industries, and will likely be signed no later than the end of 2009, according to the Journal.
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Shanghai and Taiwan Stock Exchange to Sign MOU
Taiwan’s China Post reported April 21 that the two exchanges will sign a memorandum of understanding in the near future. They will then launch joint projects, including development of an exchange-traded funds index for markets in Taiwan, China, and Hong Kong. The product would trade on a platform allowing listings from each of the markets.
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HKEx and Shenzhen Stock Exchange Sign MOU
The Hong Kong Stock Exchange signed a memorandum of understanding on April 9 with the Shenzhen Stock Exchange, the Wall Street Journal reported. In January HKEx had signed a similar agreement with the Shanghai Stock Exchange. Though the agreement lacked details, sources were quoted as saying it marked another step in the relaxation of financial barriers between the mainland and Hong Kong.
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China, Hong Kong SAR & Taiwan
China's ZCE Begins Trading Rice Futures
Zhengzhou Commodity Exchange, China's main market for futures on wheat, began trading futures on early rice on April 20, shortly after receiving government approval for the new contract.
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China PVC Futures Getting the Green Light
The China Securities Regulatory Commission said April 15 it would soon give its approval for the launch of polyvinyl chloride futures at the Dalian Commodity Exchange. PVC is a synthetic resin used in construction, plumbing, electric wires, and packaging. China is the world’s biggest manufacturer of PVC, which has seen huge price swings in recent years because its inputs are petroleum-based and its demand is tied to economic activity. The contract is for five metric tons of and a tick size of 5 Yuan per metric ton. Minimum margin will be 5% of contract value.
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China to Roll out Program to Expand Use of Yuan in Asia
China’s government has announced plans to enable five of the Chinese cities most active in regional trade to be able to conduct business in the yuan, the Wall Street Journal reported April 13. The plan will initially involve trade with counterparties in Hong Kong and Southeast Asia, but could be expanded to other overseas markets. The program is intended to enable Chinese firms active in the region to trade without incurring exchange-rate risk by using the yuan to settle transactions. A Hong Kong government official was quoted saying Hong Kong is likely to have a major role in the program because it has the financial infrastructure. The plan rollout is expected “in the next few months” but no date has been announced. In a related effort, over the past several months the Chinese government has set up billions of dollars in swap facilities with South Korea and other Asian countries, another move that should increase the use of the yuan in regional trade, the Journal reported.
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China Stocking Up on Commodities
The London Telegraph writes in a story April 16 that China appears to be buying industrial commodities for diversification in its asset holdings. Several analysts quoted in the article said that China is using the opportunity of depressed commodity prices not only to build inventories in key industrial commodities but “as an alternative to foreign bonds.” Fear of eventual depreciating in the dollar contributes significantly to China’s motivation, according to the analysis.
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China to Stick to Liquid Assets as it Diversifies Official Reserves
The head of the State Administration of Foreign Exchange, which manages China’s nearly $2 trillion in foreign exchange reserves, said it would invest only in liquid, high quality assets even as it diversifies its portfolio, Reuters reported on April 24. The official, Hu Xiaolian, said the SAFE portfolio held no CDO’s or other high-risk assets, including derivatives. He added that its investment policy calls for long-term, strategic investing and avoiding short-term traded. While the composition of China’s reserves is a state secret, local bankers assume about two-thirds are in dollar-denominated assets. Hu said that SAFE’s gold holdings increased from 600 metric tons in 2003 to 1,054 today. However, the pace of China's reserve accumulation has slowed dramatically since the global financial crisis intensified last fall. In the first quarter of this year, reserves rose just $7.7 billion after a $425.5 billion leap in all of 2008.
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China Attracts Derivatives Traders
Financial institutions see China as a promising growth market for derivatives, according to an April 22 Bloomberg story. China’s three commodity exchanges saw growth of 76% in 2008. In the OTC space, the People’s Bank of China approved in March an OTC “master agreement,” a template for OTC deals. After a three-year hiatus, a joint venture between ICAP Plc, the biggest broker of transactions between banks, and China Foreign Exchange Trading System & National Interbank Funding Centre, resumed, according to a March 24 announcement. This venture handles foreign-exchange derivatives denominated in yuan.
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Chinese Regulator Urges More Control over Derivatives
The chairman of the China Banking Regulatory Commission, Liu Mingkang, said at the annual International Swaps and Derivatives Association conference in April that China’s policy toward derivatives should be to “offer suitable products to the right clients at the right time,” according to a story in China Daily. He said risk should be “manageable,” and transparency “essential.” He also said failure to supervise financial institutions was one of the causes of the global financial crisis.
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World Bank Says China Likely to Lead Asia Rebound
China is likely to emerge from the economic slump by mid-year helping to stabilize the rest of Asia, the AP reported April 8 citing a World Bank Study. That study projected economic growth in China of 6.5% in 2009. But the study said this growth, fueled by China’s determined stimulus program, should take hold by 2010. Some private forecasters have projected Chinese growth for the year as low as 5%, compared to 13% in 2007. The Government’s official target is 8%, and China’s premier has said that the country can deploy further stimulus measures if the economy slumps worse than expected.
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Standard Chartered First Foreign Bank to Trade Chinese Corporate Debt
Standard Chartered became the first foreign Bank to trade in the rapidly growing Chinese corporate debt market in response to reforms conveyed to foreign banks verbally earlier in the year, Forbes reported. The Chinese corporate bond market grew 67% in 2008 to 868.4 billion yuan ($127 billion). Now, the Chinese regulator, the China Banking Regulatory Commission, would like to develop the corporate bond market to help reduce corporate dependence on bank loans. By encouraging foreign participation in the market, the CBRC hopes to increase the market’s depth and liquidity. A bond futures contracts is widely discussed as the next financial futures contract to be launched once the much-delayed stock index contract sees the light of day.
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Leo Melamed at Peking University: Swan Grey not Black
Leo Melamed, CME chairman emeritus, said the credit crisis of the past 18 months was the consequence of excessive liquidity and public policy errors. In a speech on April 12 before the Peking University, he said the credit crisis was not the result of a random, unforeseeable event. Among the causes he pointed to were: imprudent levels of leverage and risk and aggressive sales of adjustable rate mortgages. Melamed also blamed congressional backing and expansion of the government sponsored enterprises, Fannie Mae and Freddie Mac, which as mortgage financing giants with an implied government backing facilitated the spread of sub-prime products and the “too-big-to-fail doctrine. Melamed said that while the causes of the crisis were multiple, they were not hidden and could have been avoided.
Click Here for Speech
India
Indian Regulator May Lift Ban on Rice and Wheat Futures The Wall Street Journal reported in April that India’s Forward Markets Commission expects to lift the current ban on wheat and rice futures as soon as inventories reach a “comfortable” level. The rice ban was imposed in 2006, the wheat ban in January 2008.
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India’s RBI Plan May Allow Currency Options this Year
The Securities and Exchange Board of India is in talks with the Reserve Bank of India (RBI) about introducing exchange-traded currency options by October, the Business Standard reported. Widespread losses last year from over-the-counter currency deals made transparency and standardization of an exchange-traded product an attractive alternative, according to the news report. Currency futures are already traded on Indian exchanges.
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India Won’t Ban Sugar Futures as Prices Spike
Over the last three years, the Indian government has shut down trading of roughly a dozen futures contracts as an inflation fighting measure, but India’s futures regulator has ruled out banning sugar futures, Bloomberg reported on April 23. B.C. Khatua, Chairman of the Forward Markets Commission, which regulates India’s 22 commodity exchanges, said that the solution lies in addressing the mismatch in supply and demand “and not in banning trading.” Indian sugar production has fallen to a four-year low. In December the government had ended a seven-month ban on trading rubber, soybean oil, potatoes and chickpeas after inflation fear dissipated following a 16-year high last August.
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NSE Becomes Biggest Single Stock Futures Markets
The National Stock Exchange of India became the most active market for single stock futures during the first quarter, displacing the Johannesburg Stock Exchange, which saw a plunge in volume, Bloomberg News Reported on April 16. According to the report, the NSE traded 50.2 million single stock futures contracts in the first three months of 2009, which was nearly twice the JSE’s 27 million. The JSE volume was down 68 percent from the first quarter of 2008. In contract, NSE volume got an assist from a powerful rebound in Indian stocks.
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Japan
Japan's TFX Examines OTC Clearing
Tokyo Financial Exchange released a study on OTC clearing and concluded that any central clearing house it establishes should target interest rate swaps and credit default swaps. But the exchange committee undertaking the review noted that clearing members should be different for each of these asset classes. Noting that the major market participants in Europe and U.S. are using SwapClear from LCH.Clearnet, TFX also concluded that it should cooperate with LCH.Clearnet. Furthermore, the TFX committee decided that the first product to be cleared should be a yen-denominated plain vanilla interest rate swap.
Click Here For TFX Study
Citigroup to Sell Japanese Brokerage Units for $5.56 billion
Citigroup announced its intention of selling its Japanese brokerage and investment banking units for $5.56 billion to Sumitomo Mitsui Financial Group, Japan’s second-largest bank. Citi acquired the unit several years ago from the Nikko Cordial group. The transaction leaves out Nikko Asset Management, which is expected to be sold off separately. The article said Citi’s motivation is to raise capital in preparation for the U.S. government “stress test” scheduled for early May.
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Other Asia
Asia to Create $120 billion Reserve Fund for Financial Confidence
Asian nations will set up a $120-billion foreign-currency reserve pool by year-end to help revive investor confidence as economies around the region falter from the global recession, according to an article in Business Mirror Online. The Association of Southeast Asian Nations, together with Japan, China and South Korea, will use the funds in times of turmoil. Prominent fund manager Mark Mobius called the planned reserve pool a positive step, saying it would foster greater regional cooperation. In addition, the pool is intended to serve as a resource for countries in the region to defend their currencies and make them less dependent on the International Monetary Fund, which attaches conditions to loans regarded as unattractive, sources quoted in the story indicated.
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SGX Plans Fuel Oil Contract
Opinions are mixed about the prospects for the Singapore Exchange’s planned fuel oil contracts, Reuters reported on April 29. The contract could be attractive because of the risk characteristics of exchange clearing and also as a marketing channel for sellers. A similar contract launched three years ago by the NYMEX never traded, the article said. SGX held an information session with major regional fuel oil market players in late April to stimulate support for the contract Click
Some Asian Exchanges See Need for Regional Cooperation
Business World Online reported in early May that the Stock Exchange of Thailand (SET) had asserted the importance of cooperation among regional exchanges, particularly in Southeast Asia, to remain competitive. SET argued that the individual bourses in the region are too small in terms of capitalization to generate the efficiency and liquidity of larger exchanges in the region and around the world.
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FIA Asia News
New Members Join FIA Asia
DBS Vickers (Singapore) Securities and Kenanga Deutsche Futures recently have joined FIA Asia as regular members. Equinix was accepted as an associate member.
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