Bank of China in line for yuan futures license

The Bank of China has filed for a license to participate in the yuan-linked futures market launched by the Korea Exchange last year, market sources said Monday.

The Financial Services Commission is expected to give preliminary approval to the Seoul branch of the bank, hoping that its participation would give a boost to the new market segment.

BOC’s Seoul branch applied for the permit in March, and a commission committee gave the application a positive review. The final permission will be given after the authorities examine IT equipment and the risk management system developed by the Chinese bank.

The brokerages managing the yuan derivative market include Daishin Securities, Mirae Asset Daewoo and eBEST Securities & Investment.

Korea Exchange rolled out the yuan currency futures last October to spur the overall futures market, but the trading volume has been modest.

According to the exchange, the daily average trading volume of derivatives products reached 66.3 trillion won ($57.15 million) in 2011.

But transactions declined to 37.9 trillion won this year; traders complain of overly vigorous regulation by the Financial Services Commission as one reason for the decline.

To regain the past volume and bring back foreign investors, the operator of the Seoul exchange recently tried to diversify the investment product pool and introduce new currency-denominated products.

Still, the yuan futures market face challenges since it is not common for Korean investors to make transactions based on the Chinese currency. Korean companies doing business with China opt for dollars instead of yuan.

Despite the cloudy outlook, the Korea Exchange is looking for other Chinese financial institutions to lure them into the derivatives market.

Established in 1921, the BOC is one of the four top banks in China.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]