Chinese regulator extends derivatives transition period

The China Banking Regulatory Commission (CBRC) has extended the transition period for its new derivatives licensing regime, giving banks an extra three months to get licences in place that will allow them to trade derivatives onshore.

The new rules, which came into effect on March 1, initially set a six-month transition period for banks to apply for derivatives licences. That transition period has now been extended to November 31, primarily because the CBRC is taking longer than anticipated to process bank derivatives licences. From December 1, only licensed financial institutions will be able to conduct derivatives business onshore in China.

“Some departments received a lot of applications,” said Li Fuan, CBRC deputy director-general of the supervisory rules and regulatory policy department in Beijing. “For officers to review these and make proper evaluations will take time.”

A slew of banks have applied to their local CBRC branches for licences since the new regulations came into force. The CBRC needs to approve the application at the local level and in its Beijing headquarters.

The new regulations allow licensed local and foreign banks to trade derivatives on their own accounts for profit – previously they were only allowed to use them to hedge. Licensed foreign banks will also be able to do business with domestic corporate clients onshore. Previously, foreign banks were permitted to trade only with Chinese financial institutions.

Banks that have so far been given the go-ahead include ABN Amro, Bank of Tokyo-Mitsubishi, Citigroup, Credit Suisse First Boston, Mizuho Bank and Standard Chartered. Others such as Deutsche Bank, HSBC and JP Morgan Chase are still waiting.

Feng Gao, Deutsche Bank’s co-head of global markets for China, says he is hopeful the bank will be given the green light “soon”. And an HSBC spokesperson in Hong Kong said, “The CBRC Shanghai Branch has approved our application and we’re awaiting approval from the CBRC head office in Beijing.”