Deutsche Bank wraps up first series of RMB option trades for Chinese corporates

In line with the new SAFE regulation.

Deutsche Bank has announced that it has executed the first series of RMB option trades for Mengniu Dairy and other Chinese corporates based onshore under a new SAFE regulation. According to a release from Deutsche Bank, the new regulation allows banks to facilitate on behalf of clients a wider variety of RMB/FX derivatives trades.

A number of option trades were executed today on behalf of Mengniu Dairy and other clients across the chemical, coal, agriculture, and manufacturing industries that conduct extensive import or export activities.

These trade instruments such as FX call spreads better enable corporates to minimize risks and capture benefits associated with exchange rate fluctuation in a two-way currency market compared to basic options.

Selected clients have adopted new derivatives trades allowed under the new regulation in order to enjoy more flexible strike arrangements and a lower risk profile.

Here's more from Deutsche Bank:

The completion of these trades marks a new era for corporates based onshore, introducing the possibility to utilize simple option strategies to express different views on the RMB.

This allows corporates to hedge more effectively, significantly reduce the cost of hedging, as well as restructure and reduce the risk in their existing portfolios.

"Now more than ever, as we face a two-way FX market that can move significantly in either direction, corporates in China need effective tools to help them reduce their overall currency risk.

The relaxation of these restrictions enables companies to choose from a variety of more straightforward hedging structures to appropriately manage risk, and contributes to a more efficient currency market in China," said Beng-Hong Lee, Deutsche Bank’s Head of Markets, China.

“We view this as a critical step in the ongoing evolution of China's capital markets, and are very excited to work with clients to design and implement appropriate risk management strategies under the new regulations."

Mengniu Dairy commented, “We are excited to work with Deutsche Bank to complete our first RMB call spread under the new SAFE regulation to more effectively hedge currency fluctuation.

Having an experienced banking partner in an evolving landscape enables us to more effectively navigate the market and utilize a more comprehensive set of tools to manage our foreign exchange risks.

The increase in capital efficiency provided by our new option strategy will allow us to be more competitive in the international arena in terms of investing offshore, cross-border cash flow management, and overall balance sheet enhancement."

Deutsche Bank is committed to the development of the RMB through all facets of foreign exchange, capital markets, credit trading and transaction banking.

The bank was among the first to execute onshore RMB FX option trades, CNH cross-currency swaps, and CNH forwards.

Deutsche Bank was also the first to allow electronic execution via its online trading platform, Autobahn FX, currently offering live 24x5 CNH pricing, and launched the first investable CNH bond index.

Deutsche Bank's dedicated CNH trading desk manages a significant amount of daily trading volumes, while regular, dedicated research serves to keep investors and corporates informed on the latest developments and trends shaping the market.