CME Group Starts Offshore Yuan Options Trading

Monday the Chicago Mercantile Exchange [CME] started trading Chinese yuan futures options. The launch follows the rising demand and the derivatives group wants to respond to this. This offshore traded Chinese yuan product will be traded under the “CNH” ticker.

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A recent report from Reuters revealed that similar exchange-traded options have been offered in Hong King since 2017. That said, CME’s latest product launch could increase competition for the already existing players.

However, it should be noted that CME is quite a smaller yuan trading center compared to Hong Kong. According to Reuters, some traders who trade both OTC and exchange-based options feel it may take a while for volume to blossom.

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Firm weighting

Mukesh Dave, Chief Investment Officer at Aravali Asset Management, a Singapore-based hedge fund, said:

“The trading volume of FX contracts remains a struggle for many exchanges, which are largely dominated by retailers and very few major banks participating as market makers.

Nevertheless, Tim Brooks, Head of FX options in London, who will be trading the new CME derivatives, said

“We hope to see a liquidity emerge there that is comparable to the over-the-counter market.”

Chris Povey, executive director of FX Products of the CME Group in London revealed that clients – from investment firms to small traders – were reportedly “interested” in exchange-traded yuan products. Further commenting on the evolution of the forex market, Povey added:

“Many traders no longer see CNH as an emerging market currency as they did a decade ago.”

The CME options in particular have a large number of expiration dates that range from weekly to monthly and yearly. They are reportedly based on futures contracts with a notional amount of $100,000.

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