Ongoing efforts to liberalise the Chinese renminbi (RMB) will “tremendously boost” volumes in the OTC derivatives market, according to a new report from Celent.
According to US-based consultancy Celent, trading in OTC derivatives will escalate due to wider use of the RMB for international transactions. Deutsche Bank and HSBC have recently been credited with completing the first interest rate swap deal denominated in RMB from Hong Kong. Traditionally, RMB interest rate swaps in Hong Kong are traded in US dollars and are non-deliverable.
The report looks at the characteristics of Hong Kong’s derivatives market, noting that the region trades around US$15.8 billion daily in interest rate swaps and that the total notional amount of credit derivatives at the end of June 2010 stood at US$82 billion.
Celent added that the number of RMB spot transactions, while currently small, will reach US$3 billion before 2014.
In the FX market, Celent observed that concentration of flow was beginning to decrease. The top ten reporting dealers with the largest gross FX turnover has decreased from 70.6% in 2007 to 64.5% in 2010. The consultancy said this was due to more participants – many of them remote – trading in the market, which it also considered would facilitate electronic trading growth in Hong Kong.
"Many factors show that RMB-related derivatives will grow significantly," said Hua Zhang, Celent analyst and author of the report ‘OTC derivatives and trading platforms in Hong Kong’. "However, the market size will be very small in the near future, because of few outstanding RMB assets."