Interest rate swaptions launched in China

HSBC and Standard Chartered complete the first option on non-deliverable renminbi interest rate swaps creating new hedging opportunities for China market participants.
HSBC and Standard Chartered have opened the market for options on non-deliverable renminbi interest rate swaps with a Rmb50 million five-year trade brokered by GFI Group.

It is hoped that investors and corporates will take to renminbi swaptions in the same way they have taken to non-deliverable interest rate swaps, which the two banks pioneered in mid-August this year û since that first Rmb100 million contract the market has traded almost Rmb7 billion in swaps.

ôI don't think we'll see that level of activity to begin with,ö says Justin Chan, head of Hong Kong dollar interest rates and derivatives trading at HSBC. ôBut it's normal to see swaptions rising in popularity when markets are uncertain about the direction of interest rates, so we definitely expect to see it pick up.ö

HSBC has been at the forefront of the development of China options and swaptions thanks to its involvement in the Treasury Market Association, which is chaired by Anita Fung, HSBCÆs treasurer and head of global markets Asia-Pacific.

ôDevelopment of the CNY NDIRS swaption provides offshore market participants the opportunity to hedge against the underlying risk, which is denominated in a currency that is not at this stage convertible on the capital account,ö says Fung.

In August, HSBC also became the first market maker in renminbi futures in partnership with Chicago Mercantile Exchange.

At the moment, renminbi swaps are priced against either the onshore seven-day repo or the one-year PeopleÆs Bank of China deposit rate.
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