FIRMS in China will be allowed to offset their currency swap positions directly with other counterparties on a trial basis, the country’s foreign exchange market operator announced Friday, in a minor reform to currency trading.

    Only designated market markers for swaps and forwards can conduct the offset trades, the China Foreign Exchange Trading System (CFETS) said in a statement. CFETS is a unit of the Chinese central bank.

    The mutual liquidation of swap positions appears to be aimed at allowing banks and other financial institutions to conduct more derivative trades as their current business scale is restricted by official limits.

    “The new policy will release some quotas for those companies who can offset their derivative positions with each other,” said a trader at a European bank in Shanghai.

    “It will activate derivative trading in the CFETS to some extent, but it won’t have any impact on the yuan’s value.”

    The CFETS said the new policy would take effect immediately.

    “Still, it may not be easy to found counterparties in China’s relatively sluggish derivative market,” said a trader at a Chinese commercial bank in Shanghai. “So the new policy’s impact on the market is likely to be very limited for the time being.”

    Until now, companies must go to the market operator to liquidate derivative positions, traders said.

    China has been taking steps to reform its foreign exchange system and internationalize use of the yuan.

    (SD-Agencies)