FTSE Cürex aims to enrich offshore RMB market with new benchmarks

By:
Hamish RiskRussell J. Dinnage
Published on:

FTSE Cürex, the recently launched joint venture of the UK-based global index provider and an FX technology firm, has set its sights on enriching liquidity in the market for offshore RMB with a range of new daily currency pair benchmarks.

 
"These new benchmarks are an enabler to allow the market to come in and find new ways to create alpha or beta," Bill Dale, Cürex Group Chairman and CEO

Starting today, FX investors can access new daily benchmarks in offshore RMB that are being incorporated into the FTSE Cürex FX Index Series (FIX).

The venture has added seven new currency cross-rates based on the RMB: EURCNH; GBPCNH; SGDCNH; CNHJPY; AUDCNH; CNHHKD; and CADCNH – in addition to the USDCNH benchmark launched in June.

The new offshore RMB benchmarks increase the number of currency pair benchmarks included in the FTSE Cürex FIX from 192 to 199 pairs. And investors can access the new pairs through Bloomberg and Thomson Reuters, as well as direct through the FTSE Cürex electronic communication network (ECN) Cürex FX.
 
In an interview with EuromoneyFXNews, Cürex Group chairman and CEO William Dale says the new offshore RMB benchmarks are an effort by the FTSE Cürex tie-up to respond to considerable demand for dual currency investments in Asia, where the availability of benchmarks to act as FX valuation metrics is non-existent.

As the market for offshore RMB has opened more this year, Asian investors have shown strong interest in embedding valuation metrics into dim sum bonds, and the new FTSE Cürex offshore RMB benchmarks will allow them to do so more effectively, says Dale.

"Chinese regulators are taking great steps in terms of building new infrastructure that will support growth in the offshore RMB market, and these new benchmarks are an enabler of such growth, allowing the market to find new ways to create alpha or beta as measured in any of the eight CNH crosses and then build products that are marked or hedged at a real-time, executable RMB FIX," Dale tells EuromoneyFXNews.

In June, FTSE and Cürex teamed up to launch the FIX, which is a range of independently calculated, executable spot FX currency pairs and baskets, targeted at a broad group of asset sponsors and managers, custodians and sell-side banks.

The two companies also publish snap indices every 15 minutes, 96 times per day, providing independent, time-stamped valuation metrics that enhance net-asset-value calculations, which the companies hope will create new currency risk-management tools and investment products.

Trading in offshore RMB is "still pretty thin" relative to other major economies, despite steps by the Chinese government this year to liberalize international trade in renminbi through the opening of economic development zones in the country in an effort to enrich domestic capital markets, says Dale.

"These are early days and capital markets need new products in order to attract liquidity," he says. 

Now, through the new FTSE Cürex offshore RMB benchmarks, the FX market can bring new matching engines and other products into the renminbi market, creating a fresh market place in Asia for transactions in the currency, according to Dale.

"The purpose of our business model has been to bring to FX what has been a successful business model for the equity markets, where, if you put the underlying next to the products that track the underlying, you get more volume and more accessible investment solutions," says Dale of the offshore RMB benchmarks.

FTSE Cürex declined to say who the liquidity providers will be for the new offshore RMB benchmarks.

However, Dale says that while the FTSE Cürex FIX trading rules are open and transparent, catering to banks and non-banks alike, high-frequency traders will find it hard to simply trade for speed on the companies’ system.

He adds that FTSE Cürex is expecting "a number of FX dealers" who are already streaming trades in the companies’ USDCNH FIX rates through Cürex FX to develop more products soon that will allow investors to trade the new offshore RMB benchmarks.

"Cürex FX is not an ECN meant to compete with Hotspot or EBS," says Dale. "The ECN isn't the business; it merely enables a market solution for our target market. It also enables new technologies that will better link OTC FX liquidity to exchange traded products. In terms of volume, we anticipate our platform will have wide appeal with intermediaries facing real money clients who typically do less volume per client as opposed to the type of volume traditionally found on the FX ECN platforms. We have created a rule set that attracts real money and sustainable, streaming liquidity looking to compete for this type of order flow. Real money doesn’t do high volume – they do chunky volume. So it is really set up to provide that solution."

And FTSE Cürex is anticipating that FX traders will not be the only market participants interested in using the new offshore RMB benchmarks, says Dale.

Non-USD-centric corporate investors will also flock to take advantage of offshore RMB priced in a variety of currency pairs for risk-management purposes, he says.