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Derivatives

Liberalization, Revaluation Drive China

All eyes were on China throughout this year as the highly anticipated revaluation of the currency spurred liberalization on the derivatives front.

All eyes were on China throughout this year as the highly anticipated revaluation of the currency spurred liberalization on the derivatives front. In July, the People's Bank of China announced the yuan would be revalued and strengthened against the U.S. dollar by 2% (DW, 7/22).

"The revaluation is significant, less in terms of the magnitude of appreciation, but rather the initiation of a platform where further reform developments could be launched from," said David Liao, treasurer at HSBC in Shanghai. With market reforms on track, a handful of international firms including HSBC, Deutsche Bank, Citigroup and Standard Chartered received the go-ahead to kick start yuan forwards trading onshore in August and they quickly began closing deals (DW, 8/19).

Subsequently fx swaps and yuan-denominated interest-rate swaps also took flight. In recent months interest-rate swap trades among local banks brought the market to life and international players are looking to enter the fray next year. The main sticking point for foreign participants is deciding which local benchmark rate to use for such trades (DW, 11/11).

For local investors, equity derivative-linked dollar deposits emerged, with UBS structuring the first transactions to be distributed onshore (DW, 9/23), a move that caught rivals off guard as they scrambled to catch up. Additional allocations to the Chinese 'A' share equity market, were also a big event last year, allowing houses to hedge more market-access investment products.

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