White Collar

HKEX, best known for stock trading, eyes a role in currency market

PUBLISHED : Monday, 18 July, 2016, 3:52pm
UPDATED : Monday, 18 July, 2016, 11:05pm

Hong Kong Exchanges and Clearing has been trying to move into the currency market, a wise move in light of the internationalisation of renminbi – but a challenging one all the same.

In the latest step by HKEX to expand its yuan business, the bourse on Monday began publishingthe TR/HKEX RMB Currency (RXY) Indices that tracks renminbi against 14 currencies from countries that are major trading partners of mainland China.

This follows the introduction of four RMB futures on May 30, including an offshore yuan (CNH) contract against the euro, yen, Australian dollar and US dollar.

The first month’s turnover is far from encouraging - there is no trading at all on the futures contracts on CNH against the Japanese yen and the Australian dollar.

The futures contract for CNH and Euro on average had one contract trade per day last month, down from four per day in May.

The CNH/USD futures was better off, with 12 contracts per day last month, down from 38 contracts traded every day in May.

This may be seen by some investors as a failed new product launch. This may be related to the fact that many traders think of HKEX as more of a stock trading platform instead of a currency market. When investors want to hedge currency risks, they would usually go to banks to trade yuan and other currencies.

The success of the four new RMB futures may only be a matter of time

However, we should take a longer term view on such product launches. Before the latest RMB denominated currency futures, the exchange in 2012 has introduced currency futures on the US dollar against the offshore yuan (USD/CNH).

Initially the product was also thinly traded, with only on average 290 contracts every day. It increased to an average of 568 contracts per day in 2013, 830 contracts in 2014 and 1,062 contracts per day in 2015.

Last month, the USD/CNH futures saw an average of 1,512 contracts traded every day, up 35 per cent from 1,118 in May. In February, when the renminbi was very volatile, the average turnover of the contracts traded was 3,733 every day.

And in the first six months of 2016 there were 2,194 contracts on average per day, an increase of 186 per cent from 766 a day for the same period last year.

This proves that there are investors interested in using the HKEX currency futures, so the success of the four new RMB futures may only be a matter of time and more HKEX promotion in order to attract currency traders to use the market to hedge their renminbi risks.