Chinese regulators are preparing to close the largest market for foreign exchange market-makers, the Central Bank of China, as the nation’s central bank seeks to curb speculative lending by foreigners.
The Chinese Banking Regulatory Commission said it will close the biggest market for the trading of the foreign exchange futures market-maker Citi Group Ltd, which it has been considering for a year.
Citi Group is China’s biggest foreign exchange broker, and has a market value of about $3.2 trillion, according to data compiled by Bloomberg.
The move is the first since China opened the yuan to foreign trading in January 2017, but it is unlikely to have an immediate impact on the yuan’s value, analysts said.
It is also a setback for investors who had hoped that Citi would become a safer bet after its US subsidiary, Citi FX Group, was bought by the Swiss bank UBS AG, which had sought to make the yuan more attractive to foreign investors.
China’s government is expected to take a closer look at Citi’s futures market this week, and the move will probably cause volatility in the Chinese market, said Charles Liu, a Hong Kong-based strategist with Capital Economics.
Citi did not respond to a request for comment.
Citigroup Inc, the world’s largest private equity firm, said in a statement that it is closely monitoring the market closely.
“We believe this market has been a great asset for Citi,” the firm said.
CiteIQ, an independent research firm, also said Citi should remain stable, while Shanghai-based Citi Securities Corp, which manages Citi derivatives, said it remains bullish on the market.
The Citi-Sinai merger is a step back for the global financial services sector as more countries focus on curbing money laundering, terrorism financing and other criminal activities in an effort to curb a global wave of money laundering.
China’s financial sector is struggling to recover from the financial crisis and has been buffeted by years of capital outflows.
Its capital outflow exceeded $100 billion in the first nine months of 2017, compared with $5.2 billion a year earlier.
Chinese regulators have also been pushing to reduce the risk of speculative lending and have stepped up monitoring of the markets.
In November, regulators in Beijing banned foreign exchange brokers from selling futures contracts and said foreign banks and credit unions must report suspicious activity to the central bank.
The government has also sought to tighten financial regulation to protect the financial system and the economy, and to make it easier for foreign firms to set up offices in China.