China says it will expand scope of banks’ forex derivatives business

BEIJING, Nov 26 (Reuters) – China’s foreign exchange
regulator said on Friday it would expand the scope of banks’
foreign exchange derivatives business.

Qualified banks could provide derivatives services between
yuan and foreign currencies to cooperative banks, including
forward settlements and currency swaps, the State Administration
for Foreign Exchange (SAFE) said in a notice on its website.

The regulator added that banks should guide their customers
to establish a risk-neutral mentality by focusing more on the
core business and hedging foreign exchange risks instead of
betting on currency for more profit, according to the notice.

It added that banks should provide customers with exchange
rate and risk management services based on the principles of
real demand and the principle of risk neutrality, according to
the notice.

Currency traders said the latest move was unlikely to bring
volatility to the yuan in the short term.

China’s financial regulators have urged companies to protect
themselves against currency risks this year as the central bank
gradually loosens its control of the yuan, but are struggling to
convince local businesses to hedge.

Sources told Reuters last week that a central bank-led
self-regulatory group that helps to oversee China’s foreign
exchange industry had asked commercial banks to cap the size of
their proprietary trading accounts, which many market
participants interpreted as a move to limit financial
institutions’ speculation on the yuan.
(Reporting by Kevin Yao, Winni Zhou and Beijing newsroom,
Editing by Timothy Heritage and Alex Richardson)