HSBC kicks off currency options market in Bangladesh
DHAKA – HSBC has carried out what it claims are the first option trades on the Bangladeshi taka.
The bank acted on behalf of local garment exporter Viyellatex and Coats Bangladesh, the local unit of a UK-based supplier of yarn and other raw materials. The trades were two pairs of zero premium risk reversals, with each of the four trades worth $500,000.
Previously, the only hedging instrument available to importers and exporters was via the spot and forward market, while corporates were only allowed to hedge non-taka exposures with options.
Andrew Sharkey, Asia-Pacific head of forex and precious metals options trading at HSBC in Hong Kong, said there was no prior dollar-taka volatility market, needed for pricing options. Instead, HSBC has used historical data and internally built models to estimate implied volatility. Sharkey said other banks are interested in entering the volatility area, and said HSBC would welcome the further development of the interbank market.
Before this trade, all derivatives on the taka were banned by Bank Bangladesh, which made one-off exceptions to allow the first trades to go through, with what Sharkey describes as the intention of opening up the market and improving transparency. He said although the trades are small in global terms, they are "pretty big" relative to the local spot market, and adds that he expects to complete more trades in the near future.
The trades were conducted on November 26, 2009.
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