Battle formations

Major Chinese entities and international banks are steeling themselves for a protracted battle on multiple fronts related to the use of over-the-counter derivatives. The confrontation is killing business and preventing some Chinese entities from hedging their commodity, interest rate and foreign exchange risks at a time of heightened volatility. William Rhode reports

There has been ongoing speculation in the market as to what prompted China Eastern Airlines, Air China and Cosco to write letters in late August to a raft of commodities dealers, including Goldman Sachs, Morgan Stanley, JP Morgan, Citi, Credit Suisse, UBS and Deutsche Bank, allegedly at the behest of China’s State-owned Assets Supervision and Administration Commission (Sasac), challenging the legality of loss-making oil-related structured options.

The letters were largely similar in nature and