HKEX Report丨Offshore RMB Products & Risk Management Tools

Editor's Note

Before the relaxation of foreign investor participation in the onshore RMB derivatives market in a large scale (needless to say the limited supply and variety of onshore RMB derivatives), the development of an extensive spectrum of offshore RMB risk management tools including RMB equity derivatives, fixed-income or interest rate derivatives, and currency derivatives would be important to support global trading in RMB products. 

Author: Chief China Economist's Office, Hong Kong Exchanges and Clearing Limited

REPORT SUMMARY

Offshore Renminbi (RMB) securities and derivative products emerged and develop as the Mainland financial market continues to open up and the RMB progresses further on its internationalisation. Hong Kong is the first market in the world to start offshore RMB business upon authorisation by the Mainland government in 2003. Following subsequent Mainland policy liberalisation and facilitation bycentral policy support, RMB financial products began to prosper in Hong Kong. RMB products listed on HKEX now comprise bonds, exchange traded funds, realestate investment trust, equities, and RMB currency and commodity derivatives.

RMB bonds are by far the RMB security type with the most number of offshore listings on world exchanges, but trading is mostly conducted off-exchange. HKEX is ahead of other key exchanges in the world in offering the most offshore RMB-traded securities and RMB derivatives, with relatively active trading. Only a few other exchanges are found to offer a couple of RMB securities other than bonds, with low or no turnover. On the other hand, RMB currency futures and options are relatively popular products offered by a number of exchanges around the globe. Nevertheless, trading in these RMB derivatives has been concentrated on HKEX and a couple of other Asian exchanges.

The Stock Connect and Bond Connect schemes in Hong Kong for North bound trading by global investors in eligible RMB securities in the Mainland market have further expanded the RMB product suite available for global investors to trade from offshore. Statistics showed that global investors have growing appetite for trading RMB products from offshore through the Connect schemes and that this is in parallel to the increased trading activities in RMB derivatives in Hong Kong for the associated risk management. The RMB products ecosystem in Hong Kong is thereby gradually established and being developed.

The scalability of the Mainland-Hong Kong Connect schemes implies the possible increase in eligible onshore RMB product types and in the number of products available for global investor trading in Hong Kong. Before the relaxation of foreign investor participation in the onshore RMB derivatives market in a large scale (needless to say the limited supply and variety ofonshore RMB derivatives), the development of an extensive spectrum of offshore RMB risk management tools including RMB equity derivatives, fixed-income or interest rate derivatives, and currency derivatives would be important to support global trading in RMB products. Nurtured by the Connect schemes and if provided with the necessary policy support, the RMB products ecosystem in Hong Kong is expected to flourish with abundant product supply, active trading and greater interactions between the onshore and offshore markets.

FULL REPORT

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Source: HKEX official website, November 2018（Opinions in this report stand for author's personal research view only, not for opinions of any institutions）

Editor：DU WENXIN