The Chinese Derivatives Market: Deregulation Brings Opportunities

by Hua Zhang, March 13, 2012
Industry Trends
Asia-Pacific

Abstract

The availability of new products and Chinese financial institutions’ entry into overseas markets is causing the Chinese derivatives market to change rapidly, affecting participants, products, and regulations.

In a new report, Chinese Derivatives Market: Deregulation Brings Opportunities, Celent examines trends in regulatory dynamics, the exchange-traded and OTC derivatives markets, market participants, and the growth in cross-border trading in China. The trend of regulation is favorable to the derivatives market. Trading technology is also advanced: the China Financial Exchange system can process 7,000–8,000 orders per second, and provides colocation services.

The regulator has enlarged the business scope of securities firms. Brokers can engage in overseas brokerage and consulting business. Mergers and acquisitions are changing the market structure of securities and futures brokers, as large securities firms take stakes in futures brokers. Hedge funds will be allowed in the near future, and Celent projects AuM at Chinese hedge funds will grow 500% by 2015. Large securities firms can establish their own proprietary firms, asset managers, and branches in Hong Kong. This enables large proprietary firms to trade cross-border easily and employ hedge fund strategies.

“The regulator is encouraging Chinese corporations to trade overseas derivatives, allowing Chinese corporates and brokers to trade in overseas markets,” says Hua Zhang, analyst with Celent’s Asian Financial Services group and author of the report, “However, some barriers to trading in overseas markets remain, such as capital flow restrictions.”

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Regulatory Dynamics

5

 

Regulatory Body

5

 

Regulation Dynamics

6

Derivatives in Exchanges

8

 

Exchanges and Trends

8

 

Breakdown by Market Segments

10

 

Breakdown by Products

11

OTC Derivatives

14

Participants in Derivatives Market

16

 

Broker-Dealers

17

 

Proprietary Trading Firms

18

 

Asset Manager

19

 

Wealth Manager

20

 

Hedge Fund

21

 

Commercial Banks

22

 

Corporations

23

 

Retail

24

 

Foreign Providers

27

Conclusions

29

Leveraging Celent’s Expertise

31

 

Support for Financial Institutions

31

 

Support for Vendors

31

Related Celent Research

32

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