CME debuts offshore yuan options to tap rising trading demand


Chicago’s CME Group opened options trading for Chinese yuan futures on Monday, as it looks to deepen a market that investors use for betting or hedging against moves in China’s currency.

Hong Kong has offered similar exchange-traded options since 2017, though bringing the product to CME – the world’s biggest derivatives exchange – may be a step toward competing with the banks that dominate options by selling directly to customers.

“Many traders no longer view CNH as an emerging market currency like it was ten years ago,” said Chris Povey, CME Group’s (NASDAQ:CME) executive director of FX products based in London, referring to the ticker symbol for the offshore-traded Chinese yuan.

Povey said customers from investment institutions to small time traders were interested in exchange-traded yuan products.

A futures contract is a financial contract where parties agree to a transaction at a fixed price in the future. An option affords its buyer the opportunity to buy or sell an underlying asset, in this case a futures contract, at a fixed price in the future.

Exchange-traded options offer a way to bet on the yuan’s direction without dealing directly with banks, which write options and sell them over-the-counter to customers in far larger volumes than those settled on global exchanges.

“We hope to see liquidity develop there that’s comparable to the over-the-counter market,” said Tim Brooks, London-based head of FX options at Optiver, which will deal in the new CME derivatives.

The CME options have a range of expiry dates from weekly, to monthly or a year and are based on futures contracts with a notional amount of $100,000.

CME is a much smaller yuan-trading hub than Hong Kong. Some who trade both over-the-counter and exchange-based options say it may take time for volume to pickup.

“Trading volume of FX contracts remains a struggle for many exchanges, which are largely dominated by retail traders and very few large banks participate as market maker,” said Mukesh Dave, chief investment officer at Aravali Asset Management, a Singapore-based hedge fund.

As of the end of March, open interest in April CNH futures on the CME totalled $49.3 million, compared to $448.9 million traded on the Hong Kong Exchanges & Clearing, data from the two exchanges show.


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