The emerging risk environment in china
Download
1 / 24

The Emerging Risk Environment in China - PowerPoint PPT Presentation


  • 204 Views
  • Uploaded on

The Emerging Risk Environment in China. Dr. Guangping (Peter G.) Zhang Deputy Director General China Banking Regulatory Commission Shanghai Bureau Asia-Pacific Finance and Development Center June 18, 2008. Major Contents. Risk Management Instruments in China On-shore Products

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'The Emerging Risk Environment in China' - salena


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
The emerging risk environment in china

The Emerging Risk Environment in China

Dr. Guangping (Peter G.) Zhang

Deputy Director General

China Banking Regulatory Commission

Shanghai Bureau

Asia-Pacific Finance and Development Center

June 18, 2008


Major contents

Major Contents

Risk Management Instruments in China

On-shore Products

FX Forwards (Merchant & Inter-bank), FX Swaps, Bond Forwards, IRS, Stock Warrants

Off-shore Products

Foreign CNY Derivatives

Non-deliverable Forwards (NDF), Non-deliverable Options (NDO), Non-deliverable IRS (NIRS),H share stocks, Index futures and Options

Risk Management Supervision & Related Issues

BASEL II Implementation

Difficulties for Risk Management Practices in China

Lack of Options Market and Implied Volatilities

Low Liquidities of OTC Products

Product Design & Pricing


Cny forwards merchant
CNY Forwards (Merchant)

PBOC: “The Tentative Administrative Methods for RMB Forward Settlement” January 18, 1997

BOC: April 1st , 1997

CCB: April, 2003

ICBC: April, 2003

ABC : April, 2003


China foreign exchange trade center cfetcs
China Foreign Exchange Trade Center (CFETCS)

China Foreign Exchange Trade Center (CFETCS) was authorized to trade CNY forwards on August 15, 2005

CNY/USD

CNY/JPY

CNY/HKD

CNY/Euro


China foreign exchange trade center cfetcs1
China Foreign Exchange Trade Center (CFETCS)

Trading has not been active at CFETCS,Trading turnover in

1Q2006 RMB3420 million (430 million USD);

2Q2006 RMB7210 million (900 million USD)

3Q2006 RMB31.5 billion (3.98 biillion USD)

4Q2006 8.75 billion USD

1Q2007 5.323 billion USD

2Q2007 5.347 billion USD

3Q2007 4.323 billion USD

4Q2007 7.391 billion USD

2006 $14.06 billion; 2007 $22.384 billion


Liquidity of cny forwards merchant
Liquidity of CNY Forwards (Merchant)

BIS 2007: Daily Average FX Trading in April 2007 $9 billion (spot, forwards and swaps 61.4%, 31.3% and 7.4%), thusTotal forwards 9*31.3% = $2.817 billion daily average in April 2007, $59.157 billion in April 2007; April 2007 Forwards Inter-bank = $1.996; thus April 2007 forwards merchant trading 59.157-1.996 = $57.161 billion in April 2007; total forwards merchant around $680 billion for 2007, total forwards including inter-bank about $703 billion for 2007, or about 32.3% of total trade value of $2.175 trillion in 2007, compared to international ratio around 150%


Foreign exchange swaps trading
Foreign Exchange Swaps Trading

3Q2006 15.6 billion USD

4Q2006 31.4 billion USD

2006 50.9 billion USD

1Q2007 55.7 billion USD

2Q2007 77.7 billion USD

3Q2007 100.6 billion USD

4Q2007 81.58 billion USD

2007 total $315.58 billion

Merely 17.6% of daily FX swaps trading in April 2007


Other cny derivatives in china
Other CNY Derivatives in China

  • Interest Rate Swaps

    • SHIBOR Swaps

  • Bond Forwards

    Wealth Management Products

    Deposits with embedded options

    Deposits linked to Libor, commodity indexes, stock indexes, etc.



Offshore cny derivative products
Offshore CNY Derivative Products

Non-deliverable Forwards NDF

Non-deliverable Options NDO

Non-deliverable Forward Options NDFO

Non-deliverable CNY Swaps NDS

Non-deliverable FX Swaps

Non-deliverable IRS NIRS

Structured Notes

Deposits with embedded Options


Cny ndf most popular product offshore
CNY NDF-most Popular Product offshore

Came into existence in 1996 before Asian financial crisis, yet liquidity was extremely low

Liquidity began to pick up late in 2002

Trading turnover estimated around US$150- 180 billion in 2003 & 2004!

around US$250 billion in 2005

around US$300 billion in 2006

around US$360 billion in 2007





Cny usd historical volatilities compared to euro yen vols
CNY/USD Historical VolatilitiesCompared to Euro & Yen Vols




Basel ii implementation in china
BASEL II Implementation in China

Major Chinese Banks are Required to Implement BASEL II by 2010

Market Risk Management

Credit Risk Management


Future market demand hedging cny fx risk
Future Market DemandHedging CNY FX Risk

-Steady Growth of Foreign Trade

-Expansion of QDIIs

-International Investments

-Foreign Participation of Domestic Capital Market, Banking Industry

Need to Develop the Options Market


Challenges for market risk management in china
Challenges for Market Risk Management in China

  • Construction of reliable Yield Curve

  • Interest Rate Liberalization

  • Structuring and Pricing Capacity

  • Market Risk Management Models (VaR)


Challenges for market risk management in china1
Challenges for Market Risk Management in China

  • Lack of Exchange Trade Options

  • No Implied Volatilities

  • Low Liquidity of Existing Products


Comparisons with indian rupee derivatives markets
Comparisons with Indian Rupee Derivatives Markets

Average Daily IR derivatives in April$ 1 billion in 2004 and $ 3 billion in 2007, India, ---in China


Exotic options 1997 1 st 1998 2 nd 2008 3rd
“Exotic Options” 1997(1st),1998(2nd), 2008(3rd)

“Chinese Yuan Derivative Products”(English,400p)

World Scientific

October 2004 (Peter G. Zhang)

Chinese Yuan Derivative Products

China Financial Press (in Chinese,900p), May 2006;

2nd Edition (around 1300p), April 2008



ad