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April 18 2010
Standard Bank Group offers dynamic hedging
Standard Bank Group now offers dynamic hedging that will help clients to better manage market volatility and protect the value of their currency portfolios.
This follows further relaxation of exchange control regulations by the South African Reserve Bank (SARB) for the hedging process applicable to all over-the-counter trades confirmed with local banks.
This new development will assist in further developing South Africa’s financial markets.
Dynamic hedging will allow Standard Bank Group (SBG) to service all clients’ hedging requirements, including certain transactions that had previously been denied. The benefits of the changes made will include:
- Hedging permitted for all direct underlying exposures
- Active hedging for all short-term commitments, which will provide greater flexibility
- Reduced administration, as trade documentation will no longer be required to justify a trade.
These benefits will apply to all contracts traded with a six-month tenor or less. No announcements have been made on hedges for longer than six months.
Says Richard de Roos, Director Foreign Exchange at SBG: “This liberalisation represents significant progress for the local foreign exchange market, but it is not meant to encourage speculation. Entry into the foreign exchange market — although now entailing less administration — will still necessitate a direct underlying exposure or embedded currency risk.”
All active hedging should therefore not extend the nominal value required in relation to the underlying exposure. SBG will provide the SARB with regular trade reports on the active hedges. Any suspected speculation will be scrutinised by the SARB.
Dynamic hedging will help limit risk to import and export payments, tenders, acquisitions, balance sheet risk and loans. This also includes any exposure to the market by individuals who may now hedge travel or offshore investments.
Contracts may be entered into or exited at the client’s discretion, and need not run for the full length of the commitment period. .
Prior to this announcement, any negative or positive cash flows resulting from the early surrendering of a forward exchange contract could only be settled on maturity of the instrument. Clients may now surrender or cancel contracts traded or partially reverse some of the initial trades prior to the expiry date and the resulting cash flow can be settled immediately.
For more information on dynamic hedging see http://ws9.standardbank.co.za/forexWebsite/exchange_control_relaxation.html.
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