EXCLUSIVE-China’s regulators tighten scrutiny of FX dealers – sources

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SHANGHAI, Sep 29 (Businesshala) – China’s regulators are tightening controls on the inner workings of its money market, pressuring banks to trade in lower and shorter ranges, two banking sources told Businesshala to curb speculation. Told as part of a wider push for

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The move follows recent efforts to mitigate financial risks including slashing commodity prices, banning cryptocurrency transactions and restricting asset speculation. And they bring the campaign deep into the day-to-day operations at the dealing desk of a $30 trillion market.

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It is also the latest example of a probe focused on foreign exchange, which analysts said could be aimed at tightening the strap on the yuan at a sensitive time when US policymakers prepare to roll back monetary stimulus and China is likely to add more. ready for

Businesshala reported here in early September that brokers have downgraded currency forecasts following regulatory pressure and reports of an interbank market investigation for the first time. Authorities have also been indicating that banks and companies should be prepared for volatility.

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Several banks have also withdrawn individual FX trading products in recent months, closing another avenue for speculation.

Recently, representatives of China’s State Administration of Foreign Exchange (SAFE) have embedded themselves on currency trading floors from commercial banks to major state-owned lenders, said two sources from different market-making banks. .

He said executives had stayed for months, longer than earlier supervisory visits, and urged them to price customer deals faster and in tighter ranges, or spreads.

The bid-ask spread is the difference between the price the bank charges its customers and the market price, so reducing it reduces the profit of the commercial banks. This can also help the yuan to have a tighter trading range, but at the same time move the risk from customers to the bank when executing a deal.

One source said the regulator reminded them that their role was to stabilize things or “smooth volatility without pushing the yuan to either side”. He said the regulators have not visited foreign banks this year. Banks in Hong Kong do not participate in China’s onshore interbank market.

Another source said they were asked to cut volumes in order to reduce the turnover of interbank trades – once a badge of honor for so-called market makers who provide each other with liquidity and a wider trading pool.

“(Now) if you trade a lot you get calls from regulators,” he said. Both requested anonymity as they are not authorized to speak to the media about the matter.

SAFE told Businesshala by fax that it has “always supported” market participants in “fair” trading, and to promote the integrity, fairness, orderliness and efficiency of the foreign exchange market.

The scrutiny comes at a delicate time for China’s currency, which sits near multi-year highs but faces headwinds as markets prepare to launch pandemic-era policy support for the United States. as China prepares to slow down and relax its economy. .

The People’s Bank of China has pumped a net 750 billion yuan ($116 billion) into the banking system since mid-September, as fears of economic damage from the debt crisis and power cuts in China Evergrande rattled markets.

“Policy makers will maintain a loose bias in liquidity positions, but a side-effect is that too much cash can trigger speculation,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong. can restrain.

“The central bank has said several times not to bet on currency appreciation or depreciation,” he said.

very serious

As President Xi Jinping makes his case for a third term, the country’s most powerful leader since Mao Zedong is running what some observers describe as a minor revolution, curbing the excesses of capitalism and China. back to its socialist roots.

The crackdown on tuition and tech firms has rattled investors and affected share prices in those sectors. But regulators are also changing the way markets operate.

“(It) is definitely getting more intense this year,” said one currency trader at a medium-sized bank, citing additional training sessions, stricter checks from compliance and even chatter among peers who are more was being protected.

Since SAFE chief Pan Gongsheng warned in June against betting in the direction of the yuan, brokers in China have once shied away from publishing regular currency forecasts.

Around the same time a handful of banks also quietly began closing forex trading businesses that allowed individual clients to bet on non-yuan currency pairs.

Businesses in such accounts were small and have all but disappeared, with the Bank of China, the Industrial and Commercial Bank of China, and China Merchants Bank among those posting public statements about restricting access to business.

SAFE said it has not provided any guidance to commercial banks regarding individual forex businesses, nor has the banks given clear reasons for their decisions.

Yet everyone used the same language in their interpretations.

Huaxia Bank, which said it would suspend its personal FX business in December, citing market changes, while both ICBC and China Merchants Bank said the move was “necessary to respond to changes in market conditions”. Was. (Reporting by Shanghai Newsroom; Writing by Tom Westbrook; Editing by Kim Coghill)

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