Nomura targets smaller Chinese banks after first CFETS trade

Japanese bank is one of seven offshore FX dealers offering G10 pricing on China’s interbank market

Nomura

Nomura’s Singapore branch completed its first foreign exchange trade on China’s official interbank trading system last month, bringing it a step closer to its goal of becoming a market-maker for the country’s smaller onshore banks.

The Japanese bank is one of only seven offshore FX dealers approved to provide G10 pricing on the China Foreign Exchange Trade System, which is run by the nation’s central bank.

CFETS is the main source of liquidity for a lot of smaller onshore banks that do not have access to offshore markets and liquidity providers directly,” says Cissy Chen, a vice-president in Nomura’s macro sales team focusing on Chinese financial institutions. “There is a limited pool of offshore liquidity providers in G10 and CFETS is keen to increase this.”

The Chinese central bank’s support for offshore liquidity providers on CFETS also gives Nomura a chance to capture a share of China’s interbank FX market.

“We are focused on opening access and being a market-maker to these smaller banks, providing them with more choice of what to do and who to execute with for their FX needs,” says Chen. “Nomura can be a complement to the onshore liquidity providers, and at the same time, it enhances our brand in China.”

Nomura went live with its electronic FX matching platform in Singapore last May. The bank has worked closely on the project with the Monetary Authority of Singapore (MAS), which wants to position the city-state as the main regional hub for offshore yuan and other regional currencies trading.

“We are conducting CFETS offshore G10 pricing out of the SG1 data centre as part of our focus to build Singapore as a regional hub for FX e-trading,” says Christopher Torrington, global head of electronic FX trading at Nomura.

Two of the six other offshore FX dealers on CFETSANZ and Deutsche Bank – also provide G10 pricing from their Singapore branches, while Credit Agricole makes markets on CFETS from London. The CFETS website also lists HSBC, UBS and XTX as offshore G10 market-makers, but does not specify where these services are provided from.

Spokespeople for these firms were unable to comment on their CFETS market-making services in time for publication.

CFETS has implemented a series of reforms in recent months to further open its bond and FX markets to foreign financial institutions, including improving foreign investors’ access to FX hedging in China and extending trading hours for the onshore FX market to increase foreign participation.

In June, CFETS also introduced FX options trading as part of a wider effort to provide onshore banks with greater risk management tools. The trading system now supports both vanilla American and Asian options in the interbank RMB/FX market, as well as vanilla American and Asian options alongside European barrier and digital options in the interbank G10 currency pairs market.

CFETS will continue to introduce derivative and more sophisticated FX instruments to help market participants manage currency risks with greater flexibility and a wider range of support,” CFETS stated in June.

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