Forex and commodities trading under fire in China
Several weeks after Beijing’s seemingly final ban in a long string of crackdowns on the bitcoin trade, when the PBOC declared all crypto-related transactions illegal, which ironically turned dramatically and helped trigger the latest wave of cryptos…
… China is now trying to contain other, much more conventional avenues of potential capital flight.
The Industrial and Commercial Bank of China (ICBC) said on Friday that it restrict certain types of retail operations involving the trading of currencies and commodities. The decision of China’s largest bank and reported by Reuters, is accompanied by a series of measures taken by regulators to reduce financial risks, including mitigating the rise in commodity prices, banning cryptocurrency transactions and restricting real estate speculation. The bank’s restrictions also come as global energy prices have risen in response to power shortages in China and other parts of the world.
ICBC said in a statement that from October 17, it will suspend new account openings for the so-called “forex account activities”.”. As part of this activity, individuals may exchange currencies for the yuan for speculative or hedging purposes, and may not withdraw or transfer foreign currencies from trading accounts, a measure which may be aimed at avoiding exposure to foreign currency. cross-border currencies (mainly in USD), allowing traders to gain exposure to foreign currencies without actually holding the currency.
Then, from November 14, existing clients will not be able to open new trading positions.
ICBC will also cease accepting new clients from Oct. 17 in a similar business activity involving energy, base metals, agricultural commodities and precious metals indices, according to the ICBC statement.
“The risk is high these days in the global currency and commodity markets, so be careful to control the risks.” said the bank.
Recalling the world to the ne In recent months, ICBC and other banks, including the Bank of China and China Merchants Bank, have shut down currency trading firms that had allowed individual clients to bet on -yuan currency pairs.
It was not immediately clear whether China was more concerned with containing the damage retail investors might suffer if the market collapsed, or whether it was more concerned about a potential flight of capital through the forex channel. but Chinese banks have been burned by risky investment products in the past. Last year, Bank of China customers suffered losses on a crude oil product after lower oil prices.
Reuters last month reported that Chinese regulators had tightened their control over the country’s currency market. In response, one of the most remarkable developments was that Chinese brokers had lowered currency forecasts so as not to irritate regulators!
“Brokerages in China Removed Detailed Currency Forecasts from Research Notes, or have limited access to it, underscoring the growing sensitivity of the financial sector to regulatory repression of speculative investment. Their disappearance follows pressure to avoid stock market forecasts as well as a ban by the authorities from publishing commodity prices, amid a series of sprawling crackdowns that are reshaping the Chinese economy and disrupting financial markets…. Month-to-month analysis of ratings from four brokers in China shows that once detailed forecasts of the Chinese currency against the dollar have now disappeared or become fuzzy, with precise predictions replaced by ranges or vague statements.
Reuters also noted that “This also comes at a delicate time for the yuan, which China has sought to promote as a global reserve currency but which is tightly managed by the central bank and has been stubbornly firm recently despite an overall strong dollar. The market effect of publishing only generalized forecasts is not clear, especially as foreign institutions continue to provide precise ones. Additionally, Chinese customers can apparently access the currency projections * privately *. However, should these two gaps – foreign / domestic, private / public – remain or be closed, and if so in what direction?
In other words, early price predictions are banned, then retail, soon any institutional exposure to FX and commodities will also be taboo, leaving companies unable to hedge exposure and set up. a chain of dominoes that will end with catastrophic consequences after the next violent move in the underlying securities where asset cross-hedges provided at least some downside protection for high leverage positions.
And by the way, if China’s ongoing law enforcement has (heavily) leveraged institutional funds to negate all or part of their exposure, then pay attention below.
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