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China to require banks to hold FX forwards trading reserves - sources
September 1, 2015 / 1:29 AM / in 2 years

China to require banks to hold FX forwards trading reserves - sources

SHANGHAI, Sept 1 (Reuters) - China’s central bank will require banks trading currency forwards on behalf of clients to set aside 20 percent in foreign exchange reserves starting Oct. 15, sources with direct knowledge of the matter said on Tuesday.

The forex forwards reserves will be denominated in U.S. dollars, with no interest to be paid, the sources said. They will be reviewed on a monthly basis and funds will be frozen for one year, the sources said.

The move comes after the People’s Bank of China (PBOC) stunned markets by devaluing the yuan by nearly 2 percent on Aug. 11, causing sharp fluctuations in the currency in forwards markets.

Asking banks to set aside reserves on forwards trading will keep currency derivative trading safer, traders said, while discouraging people from quickly entering and exiting forwards contracts.

The PBOC did not immediately respond to requests for comment.

Reporting by Shanghai Newsroom; Writing by Lu Jianxin; Editing by Pete Sweeney and Jacqueline Wong

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