Research Report Summary: The HKEX USD/CNH Options Contract - A RMB Currency Risk Management Tool
The report analyses the macro environment showing the increasing two-way volatility in the RMB exchange rate that drives up investor demand for RMB risk management tools, and the critical role of Hong Kong as (1) an enhanced offshore RMB market, (2) a RMB risk management centre and (3) a gateway market. Although currently a sizeable over-the-counter (OTC) RMB options market does exist, it has drawbacks vis-à-vis an exchange market. In light of the relative lack of transparency in the OTC market, the associated margin requirements by new regulations and the counterparty risks, there is an increasing demand for bringing RMB currency options trading onto the exchange market. The USD/CNH Options contracts listed on the Hong Kong Futures Exchange (“HKFE”), which are centrally cleared through the HKFE Clearing Corporation Limited (“HKCC”), provide price transparency and reduce counterparty risks in this important and growing CNH options market.