HKEx sets low margin level for yuan futures to attract investors
Exchange hopes the small amount of deposit required for the contract would lure investors
Hong Kong Exchanges and Clearing has set the margin for its yuan currency futures at a relatively low level to try to lure investors.
It said yesterday the margin for the futures, to be launched on Monday, would be 7,930 yuan (HK$9,700) - about 1.2 per cent of the value of the US$100,000 contracts.
HSBC, Merrill Lynch and DBS are the product's market makers.
Investors can place a relatively small amount as a deposit with a broker, allowing them to buy or sell a contract betting on exchange rate movements of the US dollar against the yuan.
The futures will be in seven maturities, from one month to one year, and must be settled in yuan and US dollars when the contracts expire.
The new contract requires the least margin of all futures traded on the exchange, which usually sets margin at 3 to 5 per cent of a contract's value, but is in line with other currency futures traded through banks or other financial firms.
Calvin Tai Chi-kin, the head of the HKEx's trading division, said the margin was set at a low level as the yuan-dollar exchange rate was stable and the risk in trading yuan futures was not high.
"The margin level will be adjusted according to market risks. If the volatility of the yuan against the US dollar increases, the exchange will increase the margin accordingly," Tai said, as he introduced the product at a media briefing yesterday.
He said the new product would be suitable for companies wanting to hedge their risk when using yuan to settle cross-border trade or when investing in A shares or other yuan products.
It could also be used purely to bet on the direction of the yuan against the US dollar.
Although banks also offer other products for investors to hedge their risks, Tai said the HKEx's yuan futures would be competitive with those products.
"Many yuan forward contracts do not feature yuan delivery, but the HKEx yuan futures require physical delivery of yuan. This provides a more convenient and cheaper way for companies to hedge yuan currency risks," he said.
"The exchange-traded currency contracts are more transparent than those traded in the over-the-counter market."
Joseph Tong Tang, an executive director of Sun Hung Kai Financial, said the low level of margin would encourage investors to trade the futures.
"However, the yuan exchange rate is pretty stable, which does not suit currency speculators. Investors who bet on currencies would like to trade the Australian dollar or Canadian dollar, which have higher volatility and thus provide a better chance to make a profit," Tong said.
Gary Cheung, the chief executive of Tung Shing Futures (Brokers), said the margin was low enough to attract investors who would be like to trade the product.