CME Hungry for China Growth Accepts Yuan for Collateral

+5.77%
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CME: CME Group logo
CME
CME Group

As China looks to promote the yuan as a global currency, CME Group (NASDAQ:CME), which operates the world’s largest futures exchange, has decided to accept offshore yuan as collateral on futures trading. The currency will be accepted as collateral in January and HSBC’s Hong Kong unit will serve as clearing custodian for the CME Group. [1] The service will allow CME’s clients to place yuan deposits in HSBC Hong Kong and use it as collateral for futures trading. Trading in Chinese currency started in July 2010 to facilitate trade between China and other countries and also to reduce the country’s reliance on the U.S. dollar, though trading in the Yuan is limited to a band set daily by the People’s Bank of China (PBC). CME Group’s business is growing in Asia and the company is looking at ways to provide services that fulfill the needs of its increasingly diverse customer base. CME Group competes with Nasdaq OMX (NASDAQ:NDAQ), NYSE Euronext (NYSE:NYX) and Intercontinental Exchange.

See our full analysis of CME Group

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We have a price estimate of $309 on CME Group’s stock, about 25% above the current market price.

Low trading cost to boost volume

There is definite demand for offshore Chinese yuan as a trade currency and also as an investment. The move will strengthen offshore yuan trading in Asia and will also help CME Group’s member firms to access highly liquid assets as collateral for margins and loans. It will also reduce the cost of trading yuan futures for the Chinese investors, as they won’t need to convert their currency to trade futures contracts, and boost the average daily volume of foreign exchange contracts traded on CME Group’s exchanges.

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Notes:
  1. CME Group to Accept Offshore Renminbi as Futures Collateral, Business Week, Dec 6, 2011 []