CME to launch offshore RMB futures

Chicago-based CME Group Inc announced on Thursday that it is expanding its overall suite of yuan products by including deliverable offshore renminbi futures, answering increased demand for the currency in overseas markets.

The deliverable CNH futures will be launched and listed in Chicago in the fourth quarter of this year and in Europe in the second quarter of 2013, said the largest exchange operator in the United States.

CME's products come into play as the Hong Kong Exchanges & Clearing Ltd is scheduled next week to launch the first exchange-traded USD/CNH currency futures settled in yuan.

The announcement came as CME sees the market being "ready" for offshore renminbi futures, with regard to increasing liquidity outside China, said Julien Noble, head of CME Asia-Pacific.

He said one of the "significant developments we have witnessed is renminbi accumulation" outside the Chinese mainland, as well as broader usage in cross-border trade settlement.

Noble said he has seen growing renminbi deposits over the past 18 to 24 months, particularly in Hong Kong, which reached 600 billion yuan ($94.8 billion) by the end of 2011.

In addition, there is also an increasing daily turnover of CNH, which is between 3 and 4 billion yuan.

The trading volume in Asian markets currently accounts for 3 to 5 percent of the current overall level for CME, out of its 22 to 23 percent of transactions outside the US, and Noble said this still has great prospects for growth.

He added that the futures contract would cater to the increasing needs of companies and investors to hedge against currency risks, as the one-way appreciation trend of the yuan appears to have come to an end.

The yuan has slipped 0.6 percent against the US dollar so far this year, catching investors off guard as many of them did not take any steps to hedge against yuan exposure.

"We have witnessed obviously a significant appreciation of the currency over the last several years, as well as measures taken by the central bank in expanding the band within which the renminbi is trading.

"Investors in Hong Kong as well as London with demands for risk management will be able to benefit from these contracts given on our global platform around the clock," he said.

CME previously launched its onshore renminbi products such as cash-settled yuan futures, which was introduced in 2006, as well as OTC non-deliverable forward products, or NDF.

However, there was not yet any trading volume regarding yuan products, according to Noble, though the NDF has some trading activity on a clearing basis.

"The major reason is in the back office process where clearing members need to be finalized in order to facilitate the settlement and clearing of these products," Noble explained, adding that the renminbi has evolved between 2006 and today in internationalization.

"The CNH contract gives CME Group the ability to handle the renminbi as a deliverable currency, and eventually the ability to use renminbi as a currency of denomination for other contracts in other asset classes, for example, commodities."

But Noble said the potential for the trading volume of these contracts would be "modest" given the fact that the internationalization is just starting.

"We believe that this CNH product will be a support and complementary additive to the internationalization efforts carried out by the Chinese central bank," he said.

However, Wu Xiaoling, former deputy chief of the central bank - the People's Bank of China - said the internationalization of renminbi doesn't have any "timetable" yet.

More cross-border renminbi settlements will lead to the opening of the capital account, but that doesn't qualify the currency as "internationalized", as many other local currencies are also fully convertible, Wu said in Hong Kong on Thursday.

Meanwhile, she said, there is no need for Hong Kong to worry about any threats to its role as an "offshore renminbi center", because even if the renminbi becomes an internationalized currency, it has enough room for more than one offshore center, such as London, in a different time zone, in addition to Shanghai as the onshore center.

"We do see competition as a good thing. But we do believe our offering comes with attributes regarding the needs of institutional clients," Noble said.