NYSE Euronext, the transatlantic exchange operator, is looking to tap new opportunities in yuan-denominated currency and interest-rate products for the European market by offering a global trading and clearing platform.
Lee Hodgkinson, the head of sales for NYSE Euronext in Europe, Asia-Pacific and the Middle East, said demand for trading and clearing yuan-denominated products was growing as the currency gained importance in the capital markets.
The exchange said it planned to expand the currencies and assets it accepted as collateral. The biggest chunk of its products are denominated in euro, followed by the US dollar.
The company signed a memorandum of understanding with Bank of China in October, becoming the first exchange operator to sign such an agreement with the bank.
The agreement will allow the Chinese lender to be a European clearing member for other Asian counterparts and let international investors use yuan as collateral in futures trading.
It means that investors holding yuan deposits in Hong Kong or other Asian financial centres will be able to use the cash to bet on derivatives, including currency futures and interest-rate swaps, and clear their trades directly with BOC.
"Once Bank of China becomes a general clearing member, launch of [yuan-denominated] products should follow," Hodgkinson said.
He declined to give a timeframe for BOC to gain that status, but said progress had been encouraging.
He said there was strong demand from banks in Asia for a domestic clearing bank such as BOC in the international arena following the bankruptcy of MF Global.
"The central clearing process essentially manages counterparty risk, which is especially important for Asian clients when trading in overseas markets," Hodgkinson said, adding that "trading and clearing are interlinked but different processes".
The collapse of US futures brokerage MF Global brought to light the limitations of clearing houses as non-US clients found they could not access their collateral.
Regulators in the United States and Europe have been trying to increase the use of clearing houses since the collapse of Lehman Brothers in 2008. Clearing houses, they say, have the additional benefit of making the market more transparent on top of minimising counterparty risk.
NYSE Euronext, which was created in 2007 following the merger of the New York Stock Exchange and Euronext, is one of the main global providers of derivatives trading and cash equities trading platforms in Europe and the US.