Jan 11, 2019 (China Knowledge) - The Singapore Exchange (SGX) has successfully completed the world’s first USD/CNH flexible forex futures trade.
The trades were executed by the Singapore branches of the Bank of China and the Industrial and Commercial Bank of China on the SGX where two offshore RMB FlexC futurized swap trades were completed with a combined nominal turnover of USD 8 million.
The transaction is an important in milestone in combining the listed forex market with the over-the-counter (OTC) market.
With the implementation of new global regulatory initiatives such as the Basel III for international banking and the EU Markets in Financial Instruments Directive II (MiFID II) coming into force, financial institutions are increasingly pressured to meet requirements in Leverage Ratio, Liquidity Coverage Ratio, Counterparty Credit Risk charges and Uncleared Margin Rules (UMR) for OTC derivatives.
With this an innovative currency derivative known as the FlexC Futures come onto the market. Offer by the SGX it features an effective solution to maximise capital and operational efficiencies, reduce costs and counterparty credit risk, while retaining bilateral trading relationships.
Some of the benefits of the FlexC Futures include customizable maturity dates, multilateral risk netting and reduction of portfolio exposure, elimination of counterparty risk as compared to OTC trades, optimized balance sheet and credit lines, as well as simplified documentation with reduced know-your-customer (KYC) costs.
To date Singapore is the largest forex center in Asia and the third globally after New York and London. Last year, the SGX suite of forex futures recorded a cumulative nominal volume of USD 914 billion, more than doubling YoY. In particular, trading volume for USD with offshore Renminbi’s futures on the SGX increased to USD 534 billion in 2018 from USD 190 billion in 2017.
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