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China derivative rule change hits banks
...In stark contrast to the slow pace of reform in derivatives markets in the US and Europe, China’s regulators have in recent months shut down the main route by which foreign banks sold derivatives from offshore operations and have banished speculative deals – moves that have important implications not only for Chinese companies and foreign banks, but also for the evolution of China’s capital markets and the internationalisation of the renminbi.
As a result of the sweeping regulatory overhaul, trading volumes have plunged and foreign banks are scrambling to adapt to doing business in the new environment. “If you compare the business we are doing today with the business we were doing two years ago, it’s completely different,” says Mr Castel. “You have to forget about [the old] market. It’s gone.”
Previously, dozens of western banks such as Goldman Sachs and Morgan Stanley were striking huge deals with mainland companies that wanted to manage their exposure to swings in commodity prices, interest rates and currencies....
...Total trade volumes have more than halved since a year ago, say market participants. Complex trades have vanished from the market.
“We are selling plain vanilla business in China, that is it,” says Mr Castel.