China tells brokerages to reduce proprietary FX trading amid yuan weakness - sources
Reuters · 6d ago
China tells brokerages to reduce proprietary FX trading amid yuan weakness - sources

- China's central bank told some brokerage companies this week to scale back their proprietary foreign exchange trading, two sources with direct knowledge of the matter said on Friday.

The directive follows a slew of recent steps by authorities to stem rapid declines in the Chinese yuan CNY=CFXS, which has lost more than 5% year-to-date against the dollar to become one of Asia's worst-performing currencies for 2023.

"We have almost halted all of our proprietary FX trading accounts," said one of the sources.

"And it's known yet when such trades can be resumed."

Brokerages account for a tiny portion of China's interbank foreign exchange market. Unlike banks, brokerages do have high volume of trades to be executed on behalf of their clients, and the vast majority of their trading is proprietary.

The People's Bank of China (PBOC) did immediately respond to Reuters request for comment.

Bloomberg first reported the informal instruction, citing unidentified sources.

Widening yield differentials with other major economies and signs of a faltering domestic economic recovery have weighed on the yuan and spurred capital outflows in recent months, prompting authorities to ramp up efforts to stabilise the currency.

China's foreign exchange self-regulatory body said on Monday it would fend off risks of the yuan overshooting and pledged to take action when to correct one-sided activities, according to a statement published by the PBOC.

Sources told Reuters earlier this week that China's central bank has told some of the country's biggest lenders to refrain from immediately squaring their foreign exchange positions in the market, and to run open positions for a while in order to alleviate downside pressure on the yuan.

And, banks were also told that companies requiring to purchase $50 million or more will to seek the central bank's approval, Reuters reported.

The PBOC has in recent months set persistently stronger-than-expected midpoint fixings to slow the yuan declines. Earlier this month, it announced it would increase the supply of dollars by lowering the amount of foreign exchange that banks must set aside.

(Reporting by Shanghai and Beijing Newsroom; Editing by Kim Coghill)