LONDON The options business in the Chinese offshore yuan market is picking up significantly as China lets its currency trade more freely, global heads of foreign exchange said on Monday.
Speaking at the Reuters FX summit, Nomura's global head of foreign exchange, Jai Rajpal, and his counterpart at Deutsche Bank, Kevin Rodgers, identified the Chinese yuan options market as an area that would see sustained growth in coming years.
"Our Chinese options business ... (has) gone from being an insignificant part of our FX derivatives franchise seven or eight years ago to a significant part," said Rodgers.
Deutsche is the market leader in global foreign exchange, with a 10.7 percent market share, according to a survey released in March by research firm Greenwich Associates.
Nomura, a leading Japanese investment bank, has also witnessed a pick-up in client interest in Chinese yuan options market.
"I think the vol (volatility) space in offshore yuan will be very active. Investors outside Asia have been keen to buy optionality in future strength in the yuan," Rajpal said.
Bob De Groot, global head of FX spot trading at BNP Paribas, said there has been a lot of interest in yuan options against a range of currencies from the Group of 10 developed countries.
Growing demand for option products in the offshore Chinese yuan market is a direct result of the currency's rising share in the global FX market. But at around $10 billion a day, it remains small in the $5 trillion-a-day currency market.
But volumes have doubled since 2010 and the global head of FX trading at HSBC expects that trend to continue in 2013.
"The volume in FX spot, forwards and options has increased dramatically since the market was launched in 2010," said Vincent Craignou, global head of FX and precious metals derivatives at HSBC, adding more and more companies were settling their trade transactions in the yuan.
HSBC, which is Europe's largest bank and does a big part of its business in Asia, says it expects 30 percent of China's total trade flow to be settled in yuan within the next three years. That would make it one of the top three currencies used in global trade.
According to global transaction services organization SWIFT, the yuan is ranked the 13th most widely used world payment currency after surpassing the Russian rouble in January with an all-time high market share of 0.63 percent.
The rise in the yuan's share is a result of China's effort to internationalize the currency. China has been developing an offshore market for it, as a precursor to allowing global firms, banks and asset managers access to its domestic market.
It has also steadily eased capital controls for foreign investors seeking to ramp up exposure in its domestic securities market. That apart, the central bank, the People's Bank of China has been widening the trading band in which the yuan is allowed to move in the domestic onshore market.
"Internationalization of the renmenbi has been amazingly successful," said Craignou, adding he expected the yuan to be fully convertible in five years.
(Editing by Nigel Stephenson)