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InvestmentsChina FX regulatory body proposes cap on banks' prop trading By Reuters

China FX regulatory body proposes cap on banks’ prop trading By Reuters

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© Reuters. FILE PHOTO: Chinese Yuan banknotes are seen on this illustration taken February 10, 2020. REUTERS/Dado Ruvic/Illustration

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SHANGHAI/BEIJING (Reuters) – A central bank-led self-regulatory group that helps to supervise China’s international alternate business has requested business banks to cap the dimensions of their proprietary trading accounts, 5 sources with direct data of the matter stated on Friday.

One of the sources stated the goal was to restrict monetary establishments’ hypothesis on the yuan when the Chinese foreign money has been strengthening.

Beijing is eager to guard its export sector as home demand and financial development momentum present indicators of slowing.

Market observers stated the request was the Chinese regulatory our bodies’ newest try and stabilise the alternate fee and might not be the final.

“They will find ways and other measures to thwart the market’s ability, capacity and willingness to go long renminbi,” Stephen Jen, who runs hedge fund Eurizon SLJ Capital, stated.

He famous the yuan in trade-weighted phrases was the strongest performing foreign money in latest months, outpacing even the U.S. greenback.

China’s Foreign Exchange Market Self-Discipline Mechanism is a committee of central financial institution and business financial institution representatives that’s supervised by the People’s Bank of China (PBOC).

It has instructed banks that if the amount of their proprietary commerce rises 50% from a yr earlier or exceeds 15 occasions the quantity they execute on behalf of their shoppers, their companies can be additional analysed and investigated, stated the sources, a few of whom had been instructed of the plan through electronic mail.

The sources from inside a few of the banks spoke on situation of anonymity as they weren’t authorised to debate the difficulty in public. There was no point out of any efficient date for the measure.

The regulatory body stated in a press release late on Thursday that Chinese monetary establishments ought to actively present foreign money hedging providers for firms, however they need to not assist firms speculate in currencies.

China’s monetary regulators have urged firms to guard themselves towards foreign money dangers because the central financial institution steadily loosens its management of the yuan, however are struggling to persuade native companies to hedge https://www.reuters.com/business/chinas-regulators-struggle-sway-companies-currency-risk-2021-06-22.

China’s tightly-managed foreign money has risen by practically 3% towards the U.S. greenback since March, even because the greenback rose towards most different currencies.

Market analysts and economists attributed the yuan’s energy to China’s rising commerce surplus – generated partly by an export increase through the pandemic – regular capital inflows and a glut of {dollars} within the banking system.

With authorities eager to draw worldwide funding into Chinese shares and bonds, conserving the alternate fee regular additionally helps guarantee confidence amongst international buyers, analysts say.

Eurizon SLJ Capital’s Jen stated the success of previous Chinese measures to arrest yuan energy was “ambiguous” within the quick run, however they ultimately labored long run.

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