More offshore renminbi currency pairs to go electronic

Icap plans to launch electronic cash trading for offshore renminbi against yen, Hong Kong dollars and euros within weeks to support its renminbi/ US dollar initiative.

UK interdealer broker Icap will launch plans to expand its electronic trading or offshore renminbi by offering three new currency pairs, EUR/CNH, JPY/CNH, and HKD/CNH, on its EBS trading platform within two weeks. The move will supplement Icap's existing USD/CNH offering.

CNH is the abbreviation used in foreign exchange markets to identify offshore renminbi traded in Hong Kong, which is different from the standard symbol, CNY. All CNH trades will settle in Hong Kong.

"We've seen quite strong interest from banks in Hong Kong, as well as banks globally, which are in the process of setting up settlement clearing accounts to be able to trade CNH offshore renminbi", said Jeff Ward, head of Icap electronic broking in Asia. "Trading volume is not a huge number yet, but it's growing… volumes will continue to grow as the market itself grows."

Icap launched the USD/CNH currency pair on the EBS system at the end of September. The minimum contract size is $1million. The broker is also likely to offer derivatives services in the future.

The People's Bank of China (PBoC) and the Hong Kong Monetary Authority (HKMA) signed an agreement on July 19 to allow renminbi settlement between banks in Hong Kong. The relaxation of the settlement rules also opened up new possibilities for offshore financial and non-financial companies to hold and invest renminbi in Hong Kong.

According to the Hong Kong's de facto central bank, HKMA, total renminbi deposits in Hong Kong at the end of June stood at 89.7 billion renminbi ($13.2 billion). The currency deposits grew to 130.4 billion renminbi at the end of August. All of the offshore renminbi comes to Hong Kong through approved channels – corporate trade or retail depositors.

"The key measure we are looking at is the level of counterparty participants and we see that has been growing daily," Ward added. "The interesting thing from our perspective is many banks are setting up to trade in Hong Kong – we have seen more than 10 active counterparties two weeks after the product launch."

Banks looking to trade the currency pairs on Icap's EBS system must have a pre-arranged clearing and settlement arrangement with a Hong Kong authorised institution that can settle renminbi via the real-time gross settlement system in Hong Kong.