人民币衍生产品 chinese yuan derivatives in china & offshore

学术报告学术报告 L e a r n e d R e p o r t


人民币衍生产品Chinese Yuan Derivatives

in China & Offshore


Dr. Peter G. Zhang [email protected]

Chief Financial Engineering Advisor& Senior Director of R&D Center

Shanghai Futures Exchange

October, 2004

WWW.SHFE.COM.CN


Major Contents Exchange Traded Derivatives in China OTC Derivatives of RMB

RMB ForwardsOTC Derivatives in China

RMB Derivatives Trading OffshoreNon-deliverable Forwards (NDF)Non-deliverable Options (NDO)Non-deliverable Swaps (NDS)

Government Initiatives Product Innovation Great Potentiality in China Important Implications for RMB Rate Formation Mechanism and Production Innovation for Chinese Banks in ChinaWWW.SHFE.COM.CN


Commodity Futures in China

Only 8 products trading in 3 Exchanges• Shanghai Futures Exchange (SHFE)： Copper 、 Aluminum 、 Natural Rubber

and Fuel Oil • Dalian Commodity Exchange (DCE): Soybean bean and Soybean meat• Zhengzhou Commodity Exchange(ZCE)： Wheat and Cotton

WWW.SHFE.COM.CN


Options Embedded in Convertible Bonds

Embedded Options in bonds issued by Government-Sponsored Banks

Embedded Options in Corporate bonds 23 convertible bonds (March 29, 2004)

12 in Shanghai Stock Exchange (10 in 03)

11 in Shenzhen Stock Exchange (6 in 03)

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RMB Forwards

PBOC: “The Tentative Administrative Methods for RMB Forward Settlement” January 18, 1997

BOC: April 1st , 1997CCB: April, 2003ICBC: April, 2003ABC : April, 2003

Major Problem: Real demand principle for trade specifications

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Annual Turnover of RMB Forwards(US$ billion)

0

2

4

6

8

10

12

1997 1998 1999 2000 2001 2002 2003


Limitations of RMB Forwards

*Total Turnover of merely USD 9 billion was only 1.06% of total trade of USD 852 billion!*RMB forwards are essentially RMB futures contracts with security deposit and maintenance requirement*“Real demand principle” requirement is the major factor affecting the market development


Inter-bank Derivatives• FX Swaps

• FX Options

• Bond Options

• Swaps/Interest rate, FX and Credit default

• Swaptions

• Deposits with embedded optionsWWW.SHFE.COM.CN


Counter-Parties of Inter-Bank Derivatives Trading

• Major Commercial banks with their clients

• Off-setting with Major International Banks

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From depreciation to Revaluation

• Great depreciation pressure from 1997 to 2000 around the Asian financial crisis

• Great revaluation pressure from late 2002 to 2004

May testing of 2002

Sept G7 meeting of 2003

February G7 meeting of 2004

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From depreciation to Revaluation

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88. 18. 28. 38. 48. 58. 68. 78. 88. 9

99. 19. 29. 39. 49. 59. 69. 79. 89. 910

10. 110. 2

9/1/

1997

9/10

/199

7

9/19

/199

7

9/28

/199

7

10/7

/199

7

10/1

6/19

97

10/2

5/19

97

11/3

/199

7

11/1

2/19

97

11/2

1/19

97

11/3

0/19

97

12/8

/199

7

12/1

7/19

97

12/2

6/19

97

1/4/

1998

1/13

/199

8

1/22

/199

8

1/31

/199

8

2/9/

1998

2/18

/199

8

2/27

/199

8

3/8/

1998


RMB NDF From Premiums to Discounts

WWW.SHFE.COM.CN

7. 77. 87. 9

88. 18. 28. 38. 4

4/1/

2002

5/3/

2002

6/6/

2002

7/8/

2002

8/28

/200

2

10/7

/200

2

11/1

5/20

02

1/8/

2003

2/17

/200

3

4/2/

2003

6/13

/200

3

7/31

/200

3

9/26

/200

3

2003

-10-

31

2003

-12-

1

2003

-12-

30

2004

-1-2

8

2004

-3-3


Discounts from CYN Non-deliverable Forwards

WWW.SHFE.COM.CN

- 1000

0

1000

2000

3000

4000

5000

6000

1 20 39 58 77 96 115 134 153 172 191 210 229 248


Offshore CNY/RMB Derivative Products

Non-deliverable Forwards NDF

Non-deliverable Options NDO

Non-deliverable Forward Options NDFO

Non-deliverable CNY Swaps NDS

Non-deliverable FX Swaps

Structured NotesDeposits with embedded Options

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RMB NDF-most Popular Product offshore

Came into existence in 1996 before Asian financial crisis, yet liquidity was extremely low

Liquidity began to pick up late in 2002

Trading turnover estimated around US$150 billion in 2003!

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RMB NDF Turnover Estimation

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QuarterDaily Standard

DeviationDaily Standard

Deviation/2Q2003Quarterly Turnover

(US$ b)

Average Daily Turnover (US$ b)

2Q2003 3.49% 1.00 43.0 0.683

3Q2003 5.13% 1.47 63.3 1.005

4Q2003 6.23% 1.79 76.8 1.219

1Q2004 4.38% 1.25 54.0 0.856

Total 2Q2003 to 1Q2004 237.1

Total 2003 205.4


Pricing CYN NDFs

WWW.SHFE.COM.CN

The spot RMB/US$ rate is 8.275 and the one-year RMB NDF rate is 2750 pips discounts, so he buys the RMB NDF at

8.275 – 2750/10000 = 8.00 with notional principle of US$ 1.0 million.

If fixing rate is 3500 pips, the corresponding rate is 8.275 – 3500/10000 = 7.9251,000,000*(8.275/7.925) – 1,000,000 = 1,044,164.04 – 1,000,000 = $44,164.04


P/L of CYN NDFs

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Table 9.5 NDF SPECULATING EXAMPLE

Outcome A Outcome B Outcome C

US dollar/RMB Depreciated - Appreciated

Fixing spot rate 8.36 8.26 8.00

Equivalent amount ($) 988,038.28 1,000,000.00 1,032,500.00

Settlement ($) Speculator pays bank No net payment Bank pays speculator

$11,961.72 $32,500.00


Major Trading Strategies of CYN NDFs

WWW.SHFE.COM.CN

According to Hong Kong Monetary Authority (HKMA), calendar sprea

ding is the most popular trading strategy using CNY NDFs.

0200400600800

10001200140016001800

1/2/2003

1/14/2003

1/24/2003

2/4/2003

2/12/2003

2/28/2003

3/17/2003

3/26/2003

4/4/2003

4/15/2003

5/9/2003

6/18/2003

7/2/2003

7/15/2003

7/25/2003

8/7/2003

8/27/2003

9/9/2003

9/30/2003


Example of CYN NDF Bull Spreading

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3-month CNY NDF 6-month CNY NDF Spread Basis

Spreading Initiation on June 26Sell 3-month CNY NDF at 135 pips (RMB 8.2635/US$)

Buy 6-month CNY NDF at 385 pips (RMB 8.2385/US$) 250 pips

Closing PositionBuy 3-month CNY NDF at 597 pips (RMB 8.2173/US$)Net Profit of Closing Position= 10.0 - 10.05622285= -US$56,222.85Overall Spreading Profit/Loss = -56,222.85 + 130,590.36 = US$74,367.51

Sell 6-month CNY NDF at 1447 pips (RMB 8.1323/US$)Net Profit of Closing Position= 10.13059036 – 10.0 = US$130,590.36

850 pips


RMB ND OptionsHistorical Volatilities

WWW.SHFE.COM.CN

0. 000. 020. 040. 060. 080. 100. 120. 140. 160. 180. 20

01-2

-6

01-5

-6

01-8

-6

01-1

1-6

02-2

-6

02-5

-6

02-8

-6

02-1

1-6

03-2

-6

03-5

-6

03-8

-6

03-1

1-6

04-2

-6


Implied Volatilities of CYN Non-deliverable options

WWW.SHFE.COM.CN

02468

1012

2002

-6-3

2002

-8-3

2002

-10-

3

2002

-12-

3

2003

-2-3

2003

-4-3

2003

-6-3

2003

-8-3

2003

-10-

3

2003

-12-

3

2004

-2-3

2004

-4-3

3Month 6Month 12Month


RMB NDFs and NDOs

WWW.SHFE.COM.CN

0

1000

2000

3000

4000

5000

6000Ju

n-02

Aug-

02

Oct-

02

Dec-

02

Feb-

03

Apr-

03

Jun-

03

Aug-

03

Oct-

03

Dec-

03

Feb-

04

12M

Forw

ard

0

2

4

6

8

10

12

14

12M

Opti

on

12M Forward 12M opti on


Correlation of CYN NDFs and CNY NDOs

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Major Trading Strategies of RMB NDOs

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RMB call/US$ put; RMB put/USD call

Bullish spreadCall SpreadingPut SpreadingRMB & HK$ Put Spread: selling RMB put & buying HK$ put


“RMB/CNY Derivative Products” By Dr. Peter G. Zhang, 2004 (English, Chinese, Korean, Japanese, French, German and Spanish) forthcoming in October 2004

→The Chinese Economy→ The Chinese Capital Market→ FX Derivatives in Developed Markets→ FX Derivatives Used during Asian

Financial Crisis→ CNY/RMB Derivatives in Offshore Market→ Future Development

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Government Initiatives for Derivatives in China

• “Interim Rules for Inter-bank derivatives trading” issued by the China Banking Regulatory Commission (CBRC) on October 11, 2003 (draft version) and Issued officially on February 4, 2004

• “Nine Turning Policies” issued by the State Council February 1, 2004 on Feb.1st, 2004

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Rules for Inter-bank Derivatives in China --- CBRC

To encourage the development of inter-banks derivatives trading

• Admission of market admission, Risk management, penalty rules

• Four State-owned Banks, Minsheng Bank and Everbright Bank licensed

• Citibank, Standard Chartered Bank, Nanyang Commercial Bank licensed, and CS First Boston

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Guidelines for Developing Ex-Traded Derivatives in China --- State Council

• To increase product variety of commodity futures contracts

• To encourage researches on Stock and Bonds derivatives to prepare for financial futures

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Potentiality of Derivatives Market in China

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Economy Trade/GDP ratio 1980 14.3%; 1990 29.1%; 2000 43.4% 2002 50.2%; 2003 60.4%; 2004 76.5% (1HY)WTO Time Table (December 2006) National Treatment of Foreign Banks in ChinaQFIIs & QDIIsSteady FDI into ChinaShifting of Production capacity into China


Potentiality of Derivatives Market in China

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Commodity FuturesEnergy and other FuturesCopper and other CommodityFutures Options

Financial FuturesGovernment Bonds FuturesStock Index Futures

Financial Futures Options


Volume & Weights of Major

Products in the worldGLOBAL 2002Growth

Rate

Equity Indices 2,789.98 46.55%

Interest Rate 1,394.27 23.26%

Individual Equities 1,264.96 21.10%

Energy Products 209.37 3.49%

Ag Commodities 146.96 2.45%

Non-Precious Metals 75.59 1.26%

Foreign Currency/Index 60.51 1.01%

Precious Metals 51.26 0.86%

Other 0.80 0.01%

Total Volume 5,993.71 100%

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Potentiality of Derivatives in China (USD trillion)

Chinese GDP growth rate 8%World ETD turnover/GDP = 873.7/36 = 24.3Ratio annual growth rate 10% compared to average annual growth rate of 17% from 1998 to 2003

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Year 2006 2007 2008 2009 2010

Chinese GDP (US$ trillion) 1.78 1.92 2.07 2.24 2.42

Total Turnover of World ETD/World GDP 35.5 39.1 43.0 47.3 52.0

Chinese Ratio/World Ratio 8.00% 15.00% 25.00% 40.00% 50.00%

Total Turnover of ETD in China (US$ trillion) 5.1 11.3 22.2 42.4 62.9


OTC vs. Exchange Traded Derivativesin China

• “Interim Rules” of CBRC

OTC Market Developing Rapidly

• “Nine Turning Policies” of State Council

Preparing for the Exchange-Traded Products

The Spring of Derivatives Industry Will Come Before Long! (Zhang (2004))

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Thank [email protected]

86-021-6840-0580

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人民币衍生产品 chinese yuan derivatives in china & offshore

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