China will expand trading of interest-rate swaps next month to
accelerate the development of derivatives and help companies and
financial institutions hedge risks, the central bank said.
Qualified members of the nation's interbank bond market will be
allowed to trade yuan-denominated interest-rate swaps, the People's
Bank of China said on its Website at the weekend.
The plan will be effective 30 days from January 18, the bank
said.
"This shows the central bank is determined to promote financial
derivatives trading in the interbank market," said Zhang Lan, a
fixed-income analyst with Bank of Nanjing Co, partly owned by BNP
Paribas SA.
China first allowed commercial banks to trade interest-rate
swaps under a pilot program in early 2006, said Bloomberg News.
Such transactions enable parties to exchange fixed-rate payments
with floating-rate payments and vice versa to hedge risk.
The Association of Financial Market Institutional Investors,
which is under the central bank's supervision, asked dealers to
sign a master agreement in December to speed up the development of
derivatives trading.
"So far the more experienced international banks have been more
active than local banks and they often trade on behalf of their
customers," Zhang said.
The Chinese central bank has given commercial lenders more
leeway over the interest rates they offer and is developing the
bond market, part of efforts to increase the market's role in
directing credit and its effect on the economy.
Institutions that borrow at a floating rate and invest in assets
that pay a fixed rate lose money when there is an increase in
interest rates.
(Shanghai Daily January 28, 2008)
