This is a powerful pair up. CFETS is an arm of the People's Bank of China, the country's central bank and is the official market for interest rate and foreign exchange products. CME trades more short-term interest rate futures and options than any other exchange in the world: Last year over 559 million interest rate contracts traded at CME with an average daily volume of 2.2 million contacts. Such options, of course, enable financial institutions and other customers worldwide to hedge financial risks associated with interest rate moves.
The multi-year agreement announced Monday (March 13) enables CFETS to become a "CME super-clearing member", providing services for investors based in mainland China who will be trading CME interest rate and FX products.
"The signing of this agreement is a significant step in implementing our long-term Asian growth strategy," says CME chairman Terry Duffy.
"Access to CMEÆs global interest rate and FX futures and options contracts will provide Chinese institutions and investors with a new range of foreign currency denominated investment and risk management tools that complement CFETSÆ product offerings," adds CME CEO Craig Donohue.
Indeed CFETS has been attempting to implement market reforms in order to modernise trading mechanisms in China. Based on the quotes of the trading institutions, CFETS is now calculating and officially publishing key benchmark rates such as the Renminbi benchmark exchange rate and Libor-like (CHIBOR) money market rates in China.
"We are very pleased to work with CME on our market expansion and product innovation. Our cooperation with CME provides a great opportunity for us to learn current experiences and practices associated with developing and deepening international financial markets," says CFETS President Xie Duo.
The terms of the agreement are subject to final approval by CFETS' and CME's governing bodies and regulatory agencies within China and the US. Providing all goes well, CME has agreed to provide consulting and training programs (on trading and related technology and risk management), both in Shanghai and Chicago, for CFETS staff that will focus on operational and risk management procedures.