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Natural Persons Allowed to Trade Renminbi (RMB) Derivatives
Frances Hsieh/Wei-Ni Wang
After the establishment of the cross-strait currency settlement mechanism, the Financial Supervisory Commission (FSC) amended Clause 7 of the Directions for Banks Conducting Financial Derivatives Businesses on 25 January 2013 that banks which have obtained approval to conduct financial derivatives business, if intending to handle cross-strait financial derivatives business can now directly apply to the Central Bank of the Republic of China (Taiwan) for approval without additional prior approval from the FSC.
Moreover, to strengthen the protection of financial consumers' rights, currently only the less complicated and less risky RMB derivatives products are open to natural persons. The Bankers Association of the Republic of China ("BA") accordingly revised the Self-Regulation Guidelines for Banks Conducting Derivatives Business ("Self-Regulation Guidelines") and issued the Template of Risk Disclosure Statement for RMB Derivatives Business ("Risk Disclosure Statement"), both of which have been approved by the FSC.
According to the above Self-Regulation Guidelines, to diversify wealth management channels for domestic consumers and enlarge the potential market for domestic banks to expand RMB businesses, currently natural persons are allowed to trade derivatives product involving exchange rate of RMB only (derivative products that are not the structured product-type) and structured products involving interest rates, exchange rate, and equities of PRC. Currently, the abovementioned derivative products include foreign exchange margin trading (but cannot involve NTD exchange rate), plain vanilla FX forward and plain vanilla FX call option only. All trades in these products are allowed to be denominated and settled in foreign currency or RMB. However, before proceeding with any RMB derivatives transactions, a bank should, based on the above Risk Disclosure Statement, disclose the relevant risks in relation to derivatives trading and comply with the applicable regulations set forth in the Financial Consumer Protection Act to fulfill the obligations of explanation so as to strengthen the protection of financial consumers' rights.
