HSBC wins approval to act as market-makers for yuan

HSBC Holdings Plc. won approval on Thursday to act as a market-maker for yuan trading, as Beijing took another step towards greater flexibility for the Chinese currency.
China said in November it would launch a long-awaited market-making system for yuan trading against foreign currencies, a move that will start early next year and which represents an important step towards a freer-floating yuan.
HSBC became one of the first foreign firms to secure the right to make a market in yuan versus foreign currencies.
"The launch of (a) market-making system will invigorate trading on the forex market and improve liquidity," HSBC said in a statement sent to Reuters.
The launch of a market-making system for the yuan is part of a slew of economic and currency reforms that has taken place this year, from the creation of a commercial paper market to allowing currency swaps and forwards on interbank markets.
China revalued the yuan by 2.1 percent in July as the central bank replaced its 11-year-old dollar peg with a system that permits the currency to rise or fall by 0.3 percent a day to the dollar.
Yet the yuan remains tightly supervised by the central bank and has risen just over 0.48 percent since the revaluation.
Critics say the currency remains seriously undervalued, making Chinese-made exports artificially cheap, and contributes to a US trade deficit with China that could top $200 billion this year.
Beijing has ruled out another one-off revaluation, executing instead a spate of reform measures aimed at gradually allowing market forces to play a bigger role in determining the yuan's exchange rate.
State media had reported that introducing market makers -- which must stand ready to trade at quoted bid and ask prices -- for the yuan could limit the extent to which the central bank intervenes in the currency market.
The State Administration of Foreign Exchange said in November it would begin taking applications from banks interested in making a market for the yuan versus dollar, euro, yen and Hong Kong dollar.
Any qualified forex bank would be allowed to apply, and be allowed to perform that duty upon approval.
Chinese media have said the Big Four state-run lenders -- Bank of China, China Construction Bank, Industrial and Commercial Bank of China and Agricultural Bank of China -- were also potential candidates.