CME Allows CNH for Futures Clearing - Analyst Blog
December 05 2011 - 12:02PM
Zacks
Yesterday, CME Group Inc. (CME) announced the
acceptance of the Chinese currency used for offshore trading –
offshore yuan or CNH – as collateral for clearing futures products
in China. The company has put a ceiling on initial amount of
acceptance of the CNH as collateral at $100 million. CME shall
begin clearing futures in offshore markets against CNH from January
2012.
Accordingly, CME has also chosen HSBC Hong Kong of
HSBC Holding plc (HBC) to be its first clearing
custodian in the East. Both the parties have teamed to hold the CNH
collateral deposits from CME clients in HSBC Hong Kong. This is an
effort to penetrate into the Asian derivative markets, thereby
diversifying its business portfolio.
Last week, China Daily had also reported negotiations between
China’s securities regulators and CME, so that the latter can
extend its derivative platform in China by creating a client
profile with some of the companies in the region.
These discussions have been culminated into the allowance of CNH
and penetration into the Chinese derivative market through offshore
futures trading, which was shelved by China for the past 17 years.
However, since June this year, the Chinese regulators have
liberalized the offshore yuan market.
This market is swelling rapidly to represent about 10% of all
deposits in Hong Kong banks against less than 1% in January 2010,
thereby reflecting ample growth opportunity.
While expanding into China, CME had also launched dollar-yuan
futures in August this year, along with a micro-version of the yuan
futures to expand its customer base. Such efforts further enable
CME to take a step ahead toward its long-term goal of international
expansion. Currently, international business volumes account for
about 22% of CME’s total business volumes, while the rest comes
from North America itself.
However, the company aims to expand its business globally
through its product sales rather than mergers and acquisitions.
Hence, the company has also allied with HSBC Asia in an effort to
initiate offshore futures trading in the region, expecting to add
more assets types and currencies to the portfolio in going
forward.
Amid regulatory challenges, we believe such attempts to promote,
expand and cross-sell its core exchange-traded business through
strategic alliances, newer product initiatives along with its
global presence, which are expected to boost CME’s diverse
derivative-product line in the long run.
Hence, CME currently has a Zacks #3Rank #3, implying a
short-term Hold rating and a long-term Neutral recommendation.
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