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HKEX to Offer RMB Currency Options

Products
04 Jan 2017

Hong Kong Exchanges and Clearing Limited (HKEX) plans to offer Renminbi (RMB) Currency Options and is aiming to roll out a US dollar/Offshore RMB (USD/CNH) contract in the first quarter of this year, subject to market readiness.

HKEX’s USD/CNH Options provide the following trading benefits:

  • Flexibility of trading and hedging strategies for various market conditions
  • Limited counterparty risk, with HKEX acting as central clearing counterparty
  • Transparency and efficiency of standardised exchange-traded contracts
  • Cost effectiveness of trading on a margin basis
  • Block trade facilities and tenor coverage up to 16 months

The new options will complement HKEX’s USD/CNH Futures and other RMB Currency Futures, which lead the world with the best liquidity and distribution among exchanges. USD/CNH Futures’ total trading volume in 2016 was 538,594 contracts (ie, US$54 billion, or RMB376 billion#, in notional amount) and was up by 105 per cent compared with the previous year. The open interest for USD/CNH Futures rose to an all-time high of 45,635 contracts (ie, US$4.6 billion, or RMB31.8 billion#, in notional amount) on 30 December 2016 and now accounts for about two-thirds of the open interest for all the world’s exchange-traded USD/CNH futures. There has also been an increase in the number of Futures Exchange Participants (FEPs) in the market, with 13 newcomers offering the contract to their clients since the start of 2016, bringing the total number of FEPs that offer access to the product to 103.

"RMB Currency Options are part of our efforts to provide a full range of RMB-related derivatives to take advantage of our unique opportunity to help entrench Hong Kong as a gateway for cross-border fund flows and a risk management centre in connection with the internationalisation of the RMB. The introduction of Currency Options will provide investors with a tool to execute more trading strategies," said Julien Martin, HKEX’' Head of Fixed Income and Currency Product Development.

Key Contract Specifications for HKEX’s planned USD/CNH Options

Contract Size US$100,000
Official Settlement Price USD/CNY (HK) Spot Rate published by the Hong Kong Treasury Markets Association (TMA)* at or around 11:30 am on the Expiry Day
Settlement on Exercise
Physical delivery on exercise
Holder Writer
Call Options Payment of the Final Settlement Value^ in RMB Delivery of US dollars
Put Options Delivery of US dollars Payment of the Final Settlement Value in RMB
Exercise Style European
Contract Months Spot month, the next three calendar months and the next four calendar quarter months
Final Settlement Day Generally Third Wednesday of the Contract Month
Expiry Day Two Hong Kong Business Days prior to the Final Settlement Day
Trading Hours
(Hong Kong Time)
9:00 am to 4:30 pm (Trading hours on the Expiry Day are from 9:00 am to 11:00 am) on Hong Kong business days
Exchange Fee RMB8 per contract (Waived for the first six months)
Exercise Fee RMB8 per contract
Commission Levy Nil
Position Limit For USD/CNH Futures, CNH/USD Futures and USD/CNH Options combined, a position delta of 8,000 long or short in all Contract Months combined provided that:
  • Position delta for Spot Month USD/CNH Futures and Options combined during the five Hong Kong business days up to and including the Expiry Day shall not exceed 2,000 long or short; and
  • The position for CNH/USD Futures shall not at any time exceed 16,000 net long or short contracts in all contract months combined
Large Open Positions 500 open contracts in any one series
Holiday Schedule Hong Kong holiday schedule

Details of the contract specifications are set forth in a circular on the HKEX website.

Liquidity Providers and Product Promotion

HKEX has invited FEPs to apply to serve as liquidity providers for the USD/CNH Options, and it plans to set up a joint promotion programme to assist FEPs in helping their staff and clients gain a good understanding of the new product.

# Based on exchange rate as of 31 December 2016.
* Please refer to the HKEX website for the TMA's disclaimer and copyright notice regarding information provided on its website.
^ Final Settlement Value is the Strike Price multiplied by the Contract Size applies to both Call and Put Options.


Ends

Updated 04 Jan 2017