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China to extend onshore FX trading to overlap with London - sources

BEIJING (Reuters) - China’s foreign exchange market will soon extend trading hours for the yuan to 11.30 p.m. (1530 GMT) to overlap with European trading hours, three sources with direct knowledge of the matter said on Wednesday.

A man walks past an advertisement promoting China's renminbi (RMB) or yuan, U.S. dollar and Euro exchange services at foreign exchange store in Hong Kong, China, August 13, 2015. REUTERS/Tyrone Siu

The change is expected to help Beijing advance its project to encourage more international use of the yuan and support China’s case for the International Monetary Fund (IMF) to include the yuan in its currency basket.

“The move will be a big boost to the yuan’s inclusion in the IMF’s SDR basket,” said Joey Chew, Asian FX Strategist at HSBC in Hong Kong, referring to the special drawing rights basket, which the IMF uses as an internal unit of exchange and which currently comprises just the dollar, euro, yen and sterling.

“The IMF has mentioned that it had concerns on yuan liquidity during London trading hours because it calculates the FX value of SDR basket currencies at 12 p.m. London time when there is no trading in China’s onshore market at present.”

The China Foreign Exchange Trade System, managed by the central bank, currently closes at 4.30 p.m. (0830 GMT), keeping the onshore market out of sync with London.

Dealers with Chinese banks said the change would also give international and Chinese markets more chance to react together to events.

Offshore yuan trade through London is already booming. One major venue for banks to trade currencies with each other, ICAP-owned EBS, said on Wednesday the yuan was now its third most traded currency after the euro and yen.

Some of their in-house data also showed that daily trade in the offshore market, which a year ago tended to peak around 2300 GMT at the start of the Asian day, now instead sees its biggest spike when London wakes up.

“If you look at what has been happening over the past few years, (Chinese bank) CCB has been appointed as the first clearing bank in London. Other Chinese banks have been setting up and expanding their trading desks in London,” said Jessica Roberts, who supervises a growing yuan business at EBS.

“(That) perhaps suggests something about where the main RMB trading hub will be.”

LIBERALISATION

Traders in London said the extension would not affect them immediately, because they currently trade the yuan through the offshore market and via non-deliverable forwards as most foreign traders cannot directly access the onshore currency.

“It may raise question marks about CNH going forward...and it may mean that over time there’ll be less need for non-deliverable forwards, but we’re still a way from that because they’ve not fully opened the market,” said Ian Gunner, a currency fund manager at Altana in London.

“The next move now would be to have more freedom to partake in onshore trading.”

The People’s Bank of China did not immediately respond to requests seeking comment. The sources declined to be named due to the confidentiality of the matter.

Chinese President Xi Jinping is due to visit London next week, where UK officials hope to attract Chinese investment and win concessions for British firms - including banks - in mainland markets.

It is unclear how much real impact the extended hours would have on investor sentiment in the near term.

Offshore markets in Hong Kong - the largest centre of CNH trade - have struggled in the aftermath of a surprise devaluation of the yuan in August. That left investors worried that economic growth was slowing down faster than previously thought and that other devaluations may follow.

“It’s onshore hours that they have extended so not something that affects us directly. However, I would say that it’s further evidence of the liberalisation process and (China’s) efforts to bring the onshore market in line with the offshore market,” said Insight Investment currency fund manager Paul Lambert.

Reporting by Beijing Newsroom; Additional reporting by Lu Jianxin and by Michelle Chen in HONG KONG and Jemima Kelly and Patrick Graham in LONDON; Writing by Pete Sweeney; Editing by Neil Fullick and Mark Heinrich

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