New Chinese FX crackdown to hit corporate hedging

Despite new reserve requirement, dealers say ‘maturity’ in risk management is here to stay

Reinstated: PBoC brings back a deposit requirement for derivatives trading that was in place from September 2015 to September 2017

Dealers fear a move by the Chinese authorities to reinstate a deposit requirement on foreign currency derivatives could slow a recent pick-up in hedging from local corporates, despite warnings from regulators that firms need to do more to brace for future market volatility.

The People’s Bank of China announced on August 6 that banks must put up a zero-interest, US dollar-denominated deposit at the central bank, representing 20% of the notional value of all new FX forwards, swaps and options

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