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A Primer on Trading Currency in China

  • By Ira Apfel
  • Published: 2011-04-05

AFP recently posed these hypothetical questions to currency experts about trading in the offshore RMB (CNH) market.

Q: Who Can Trade in the CNH market?
A: Anyone. You don’t need to be located in Hong Kong. However, you must have a RMB account in Hong Kong with an authorized bank (HSBC Hong Kong) before your trade is due to settle. For payment purposes the account has to be opened as CNY, although it is still RMB.

Q: What’s the current market daily volume?
A: $600-$700mio USD Spot, $700 mio swaps.

Q:  What’s the current spot ticket size?
A: $5-$10mio

Q: What’s the current FWD ticket size?
A: $10-$20mio

Q: Where can I get some levels?
A: Bloomberg HSAC {go} Option 9. Reuters HSBCRMB and HSBCRMBX for CNH crosses EBS CNH Reuters CNY=D3

Q: What’s the current RMB deposit base in Hong Kong?
A: As of Februrary, RMB deposits in Hong Kong were at RMB 370 bn.

Q: Do I need an account to trade CNH?
A: Yes. Unless you net settle at maturity.

Q: Can I trade CNH NDF?
A: No , there is no NDF market. You can trade an artificial NDF (Net out your CNH amount exactly at maturity and net settle the primary CCY), but you need to be sure you don’t have any residual CNH if you don’t have an account because there will be nowhere to pay/receive it to.

Q: Is there a CNH Money market?
A: Yes. Term rates at the moment are 0.3% to 1.0%

Q: Is there an O/D charge in CNH?
A: Yes. BLR (Best Lendng Rate) + 3%. Currently 3.88% + 6% = 6.88%

Q: Will I get paid credit interest?
A: No, but you can do a t/n swap or lend/borrow the CNH.

Q: Once I have CNH on my account, can I buy any RMB asset?
A: You have to have a custody account set up to buy RMB assets. This is a totally different process from the nostro account.

Q: If I have sold an asset in RMB (say a building in Beijing), can I repatriate the money by selling CNH?
A: No, you cannot repatriate unless you have approval from the five regulatory bodies.

Q: Can we do CNH bonds?
A: Yes. There are several issues currently available in secondary market. You need to have the nostro/SWIFT account open for you to transact USD into CNH. With those CNH proceeds, via a separate account set up with your custodian, you can then buy and sell CNH bonds in Hong Kong.

Q: Can I trade options?
A: Yes. Deliverable CNH options, meaning physical CNH settlement options, are available without restriction to any ‘corporate’ counterparty that has a physical CNH nostro account in Hong Kong.

Q: What is the current ATM vol spread?
A: Currently vol spreads are 0.4 vol for normal market amounts.

Q: Where can I see a USDCNH vol run?
A: ‘HSBCRMB’ on reuters has an ATM vol run.

Q: What is the average option ticket size?
A: $30 to $50 and total turnover/day is $100 to $200.

Q: Can we have a Foreign Currency Account in CNH?
A: At the moment, no, because of system issues (there is no CNH SWIFT code).

Q: What is the day count basis?
A: MMK a/360, Bonds a/365.

Q: What holiday calendar does CNH adhere to?
A: FX market: $/CNH follows US/Onshore China holidays. That means $/CNH pair has the same set of value dates with $/CNY onshore. Deposit market adheres to HK holidays. Banks in Hong Kong prefer to have CNH MMK trades value day not falling on HK holiday as the operations should be short staffed on Hong Kong holidays. The settlement system CNH RTGS in Hong Kong opens throughout the year except on January 1.

Q: Can I deal on E-Treasury?
A: On Hong Kong RET (as CNY) and on London RET (as CNH), yes. In NY, no.

Q: What market trends are you seeing in CNH?
A: We have seen the $/CNH rate at an extreme discount from the $/CNY onshore rate , but currently $/CNH and $/CNY are very similar. We have seen a tendency for players to move short $ positions into $/CNH from $/CNY NDF because of the advantageous outright rate. We have a problem holding long CNH balances because of credit issues with the clearer BOC HK. The market expects BOC HK to be made a custodian bank soon. This will eliminate the credit issue.


Note: This primer is provided for informational purposes only. AFP is not a registered investment adviser and under no circumstances shall this information be construed as investment advice of any kind.

Copyright © 2014 Association for Financial Professionals, Inc.
All rights reserved.

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