By Jennifer Hughes -
An internet-based trading group will this week become the first non-bank provider of foreign exchange products to be approved by Chinese regulators. The move is the latest example of China opening its tightly controlled financial markets to foreign companies.
CMC Group, a UK-based company which runs financial trading websites around the world, has been granted a licence, numbered 1, by the Chinese Banking Regulatory Commission which covers financial services.
The permit allows CMC to open a representative office to advise local customers about its foreign exchange products. Product sales will still have to go through CMC's internet operations overseas.
"We think establishing a presence will give CMC customers a comfort since they now have recourse to the CBRC in the event of a problem with their account. They don't have this with other groups," said Kenneth Jones, consultant for CMC on regulatory matters. "The physical presence is seen as crucial in instilling faith in local traders."
Rival services are based outside the country and are only permitted to hold seminars in China aimed at "informing" investors about the FX markets, but, like CMC, they cannot sell products directly. Chinese investors can trade currencies freely, including leveraged margin-trading, over the internet via these companies with legal funds held offshore.
A study of retail-level FX investors in the region showed the credibility of the service provider, rather than the cost of trading, was the main concern. It was published by Hong Kong University and E*Trade, a financial services group and rival trading platform to CMC.
China operates strict capital controls as the result of a tight currency peg that values the renminbi at Rmb8.27 to the dollar, and cross- border currency movements are heavily regulated.
However, the country has come under increasing international pressure to liberalise its markets and begin relaxing the peg. Last year, China's State Administration of Foreign Exchange (Safe) said it would begin gradually easing the limits on cross-border capital transactions. Loosening the flow of funds in and out is seen as a precondition to easing the exchange rate regime.
There are 43 categories under the Chinese capital account. Safe officials said last year that about 70 per cent of them would be free in five to six years' time.
CMC said its customers in China were mostly individuals with legitimate offshore funds.
Source: FT via Yahoo Finance UK
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