HSBC reckons the numerous small-to-medium-size enterprises that have an increasing exposure to the renminbi as cross-border business expands will be interested in the product. The bank says that an increasing number of individual customers - many of whom require renminbi holdings for personal purchases with large transaction amounts - will want the product as well.
RMB NDFs have been traded in Singapore for several years -- but they were only available to the bank's larger customers. Now the little guy can get a piece of the action.
The timing is perfect. Many investors are taking the view that even if China does not announce any further revaluation of the renminbi to coincide with the visit of George W. Bush to China between November 19-21, currency reform is inevitable. Since China ditched the renminbi's 11-year old dollar peg and revalued the yuan on July 21, the currency has gained just 0.3% against the dollar.
But some investors are gambling that will change relatively soon. Overseas renminbi NDFs show the currency rising to 7.9050 per dollar, or 2.3%, in six months. Just a week ago, they priced in a gain of only 1.7% for the same period.
HSBC's RMB NDFs will be offered at a minimum contract amount of $10,000 in five tenors, including one, two, three, six and 12 months. Both buy and sell contracts are available, catering to customers' views of the renminbi exchange rate movements.
To take up a RMB NDF contract, HSBC requires 25% of the notional contract amount as deposit lien. The deposit lien, which can be in the form of Hong Kong dollar or US dollar savings deposits or time deposits, will continue to earn interest income while being held with the bank.
For personal banking customers, if the deposit lien value falls below 10% of the notional contract amount, customers will be called upon and given the option to top up their deposit lien or square their position. If the deposit lien value falls below 5% of the notional contract amount, the bank will automatically square the customer's position. The bank says this will limit any potential losses arising from sudden movements in the renminbi exchange rate.
To help commercial banking customers in monitoring the performance of their portfolio of RMB NDF, the bank will automatically square the customer's position when the deposit lien value falls below 5% of the notional amount of the contract.