SGX Offshore Renminbi Futures Grow from Strength to Strength
Average daily volume for SGX USD/CNH futures surged 65% month-on-month to a record high of 5,677 contracts (US$0.57 billion notional) traded per day in the month of January, cementing SGX’s position as the world’s most liquid venue for exchange-traded RMB currency derivatives. On 5 January 2017, trading in SGX USD/CNH futures rose to a single-day record of 11,049 contracts (US$1.1 billion notional), 24% higher than the previous record of 8,940 contracts (US$0.9 billion notional) attained on 10 November 2016. Launched in October 2014, average daily volume of SGX USD/CNH futures increased 253% from Year 2014 to Year 2016.
In January 2017, SGX USD/CNH futures soared to a monthly record high of 107,858 contracts (US$10.8 billion notional), a 10% increase over the previous record of 98,145 contracts (US$9.8 billion notional) in November 2016. Volume climbed 173% y-o-y and 57% m-o-m.
Since launch in October 2014, SGX USD/CNH futures trading volumes have grown from strength to strength. In Year 2016, a total of 514,039 SGX USD/CNH futures contracts were traded, a 108% gain over Year 2015.
For the first time in five years, China’s foreign exchange reserves dropped below US$3 trillion in January 2017 from a peak of US$3.99 trillion in June 2014. While this was below a psychologically significant level, the decline was the smallest in six months, as tighter capital controls and a stronger RMB helped to slow capital outflows.
On 6 January, the People’s Bank of China (PBoC) strengthened its CNY fixing to 6.8668 against the USD, the largest one-day spike by 0.9% in fixing since 2005. On the same day, the CNH HIBOR Overnight rate rose to 61.3%, the highest level since 12 January 2016. The spread between onshore and offshore RMB widened in January. Participants trading SGX’s USD/CNH futures/option and SGX CNY/USD futures would have been able to capture this move by trading both currency pairs.
The RMB recovered by the later part of January 2017, in line with a broader downward correction in the dollar. This followed the surge in the dollar after Donald Trump’s presidential election win in November 2016 and the Federal Reserve’s interest rate hike in December 2016. The decline in China’s reserves below US$3 trillion may raise market concerns about actions to stabilise the RMB against the dollar. In view of this uncertainty, both onshore and offshore investors with exposure to RMB can look to the usage of efficient currency risk management tools, such as SGX USD/CNH futures/options and SGX CNY/USD futures, to better protect themselves against RMB fluctuations.
SGX USD/CNH Options
In December 2016, SGX launched USD/CNH Options to complement the trading of SGX USD/CNH futures. Participants trading SGX USD/CNH Futures/Options are entitled to margin offsets against SGX AUD/USD Futures, SGX CNY/USD Futures, SGX FTSE China A50 Index Futures, SGX MSCI China Index Futures/Options and MSCI Taiwan Index Futures/Options.
The key contract specifications for SGX USD/CNH Options are as follow:
SGX USD/CNH Options Contract Specifications
One SGX USD/CNH Futures Contract
13 monthly plus the next 8 quarterly months
Minimum Price Fluctuation
Before Last Trading Day:
T-session: 7.00am to 6.00pm
T+1 session: 6.15pm to 4.45am
Last Trading Day:
T-session: 7.00am to 11.00am
Cash settled in CNH against USD/CNY (HK) Spot Rate published by the Treasury Markets Association of Hong Kong at approximately 11.15am (Hong Kong time), rounded to 4 decimal places.
Negotiated Large Trade
Minimum 20 lots
Parties who are interested to participate in the SGX USD/CNH Options Market Maker or Liquidity Provider programmes may contact their respective SGX Business Managers.
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RISK DISCLAIMER: Trading in futures products entails significant risks of loss which must be understood prior to trading and may not be appropriate for all investors. Past performance of actual trades or strategies cited herein is not necessarily indicative of future performance. The information contained herein is provided to you for information only and believed to be drawn from reliable sources but cannot be guaranteed; Phillip Capital Inc. assumes no responsibility for errors or omissions. The views and opinions expressed in this letter are those of the author and do not reflect the views of Phillip Capital Inc. or its staff.