Chinese banks automate to trade derivatives

Guangdong Development Bank (GDB), First Sino Bank (FSB) and the Bank of Shanghai (BOS) are installing systems by Reuters to comply with derivatives regulations introduced by the China Banking Regulatory Commission (CBRC) in March, said officials.

GDB and FSB are in the process of installing Reuters Global Limits, an integrated limit, credit and market risk management system, reports sister publication, Dealing With Technology. Both banks, along with the Bank of Shanghai, are also installing Kondor+, a real-time position-keeping and desktop analysis system.

GDB is installing the systems for its trading floor, based in its head office. The bank expects the technology to be completed before the end of the year. Similarly, FSB and BOS are installing systems for the treasury departments of their head offices in Shanghai. Installation at BOS will be completed in October, it said.

GDB chose an integrated risk management solution to minimise the number of systems required to manage across trade flows and to manage its operations. An official said the bank will gain the ability to make trading decisions in compliance with risk policies and global regulations. The systems will also support the management of structured products, he added.

Reuters is working with GDB to develop an integrated workflow that reduces operating costs and errors, increases efficiency and provides for risk control and regulatory compliance, said Serena Wang, managing director for Reuters in China.

The CBRC's announcement stipulated that domestic banks make stricter calculations for capital adequacy ratios - the percentage of a bank's risk-weighted credit exposure. The Reuters risk system will enable the bank to rationalise IT costs and reduce total cost of ownership for systems as it responds to new regulatory initiatives, said officials.

Officials at FSB said they plan to use Kondor and Global Limits to monitor its counterparty risks on a consolidated basis for all financial instruments, taking netting and collateral effects into account. It is applying for a derivatives licence under the new derivatives legal framework, and is confident that the implementation of Reuters solutions will put the bank in regulatory compliance with CRBC, as well as with the Basel II regulations in the longer term, said Jiang Tian Xi, chief executive at the bank. He said the system will assist the bank in credit and operational risk management issues.