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China Stocks Slump Over 10% Post-Intervention: Derivatives Dealers Reveal $150 Billion In "Questionable" Exposure
"Right now, dealers are going through their books trying to work out what their positions are worth," explains a major participant in the Asian derivatives market as Reuters reports the suspension of hundreds of mainland China stocks has created disputes between banks and their clients over the valuation of billions of dollars of equity derivatives. "In the end, someone is going to have to call the value of those deals, and someone else will lose out," and with over 1000 stocks still suspended, and Chinese stocks now 12% off post-intervention highs, ISDA - the body that represents the world's largest dealers - is worried that at least $150 billion of outstanding OTC equity derivatives on mainland-listed shares may not have the appropriate language to deal with these events. After 3 days of "you will never learn" rises, margin debt declined following China's great data last night and the continued good news is bad news sell off today.
- *PBOC TO INJECT 20B YUAN WITH 7-DAY REVERSE REPOS: TRADER
Post-intervention, there is some "malicious selling" going on...
- *FTSE CHINA A50 JULY FUTURES DECLINE 0.6%
China's "Dow"...
And CSI-300 (China's "S&P 500") is now down over 12% from the post-intervention highs...
As after 3 days of "you will never learn" rises...
- *SHANGHAI MARGIN DEBT DECLINES FIRST TIME IN FOUR DAYS
And last night's data pushed China's debt-to-GDP to record highs...
But a far bigger risk looms, as Reuters reports,
The suspension of hundreds of mainland China stocks during a market plunge from mid-June could lead to disputes between banks and their clients over the valuation of billions of dollars of equity derivatives.
Banks dealing in derivatives are concerned that valuation terms covering market disruptions in other Asian markets, such as trading halts when stocks move up or down by the exchange's daily range limits, might not apply to the wave of stock suspensions in China.
...
Dealers have written at least $150 billion of outstanding over-the-counter (OTC) equity derivatives on mainland-listed shares, according to estimates by Shanghai-based investment consultancy Z-Ben Advisors.
"It's not yet clear if the existing disruption event language for other Asian jurisdictions can be applied to China or how the existing disruption definitions for limit-up, limit-down would apply to suspended stocks," said Keith Noyes, regional director, Asia Pacific, at the International Swaps and Derivatives Association (ISDA), which represents the world's largest derivatives dealers.
And for those who proclaimed the surge in China stocks a victory, think again...
"There could be wrangling over issues such as whether the Shanghai composite index closing price, which would generally be the easiest to use to value contracts, is a good price or a disrupted price, given that so many stocks are now suspended," said Noyes.
"Right now, dealers are going through their books trying to work out what their positions are worth," said Adam Sussman, head of execution and quantitative services at international brokerage Liquidnet. "In the end, someone is going to have to call the value of those deals, and someone else will lose out."
* * *
We know who...
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Bai Da Fu Kien Dip
Damn! that could be a problem
So you ETF players, get a glimpse of how your bets (either way) are going to play and pay out.
YOU GET NOTHING!!
The more central control there is, the more you get shit like this. And this is the model our elites wish for. It's their wet dream. They worship it.
Nobody cares the state of the empire they rule over so long as they rule over it absolutely.
well, the Chinese mentality of "buy a home regardless of what it cost because the price will only forever go up and things never go the other direction!" are driving my taxes up dammit.
This generation of Chinese are nothing like the depression era generations. I actually (honestly) had a couple Chinese ladies explain to me how buying a $10,000 purse could be a good investment. Exact same mentality investing in Chinese stocks. (or, it was the same mentality)
It turns out, backing 6 loans with the same collateral is a bad idea. Who knew?
"Inject more yuan"
Hopefully it works as well as it did for Bernbanksre!
Have you been to Australia. Equal beliefs prevail.
It's amazing how the powers that be think of their populations as cattle.
Yah!-Yah! Mush!
Come on load your F-ing capital into these inflated assets, its for the good of the farm.
If you don't follow we will leave you out here in the desert!
3/5 stars. last two words are not even remotely chinese
Hey, we paid for more dead cat bounce than that!
PBOC
Uhhhhmmm, besises the central bankers, who is going to buy when you're not allowed to sell?
If you cannot sell it then its value is zero, right?
Global equity markets already know the Chinese equity debacle was priced in. It looks good on paper, and it's a fun talking point.
The more the Chinese equity markets correct the better, for investors that are looking to price China in non-nominal terms.
If you look at the Oceanic and Asian equity markets over the last 6-12 months, they've been divergent of the China ponzi.
To my way to thinking, the rallies in the Chinese markets since early 2014 have been purely speculative. Therefore,
if you were to ignore official intervention in the markets, the Chinese indices should really fall back to 4%-10% higher
(GDP growth + snizzle), than they were in early 2014.
Any other thoughts on where the real bottom 'should' be in Chinese markets if you were to ignore intervention?
I'd say the Chinese equity markets should easlily be at 2014 equity levels. The Shanghai Exchange should be on the 3000 handle plus or minus 1-200 points.
When the PBoC opened offshore investing earlier this year, the mainland markets went parabolic.
I just don't see what would justify such a huge increase. In June 2014, the Shanghai Ex was at 2024. It went as high as 5166 in June. Today it is at 3793.
So if it should be on the 3000 handle as you say, then it would have to be worth about 50% more than a year ago. What would possibly justify such a rise in value?
loose monetary policy, da print, da bernank flation devalue of yuan as far as stock price. so on.
certainly not the fundamentals, they are a lost metric, never to be evaluated as we are central plan command econ. CPCE, HA...
Mark it zero donny.
Fuckin pederist, dude.
Um, well...that's just like your opinion....man.
Wait - all data was 7 Up yesterday.
You don't....
You don't think.....
IT'S ALL BULLSHIT!!
I've been telling my colleagues 'look it ! There's your Black Swan - and it's a big fucker!
Nobody wants to see it - Total denial
They have a plan in place. They'll just arrest the sellers and "house" them in the newly created ghost cities.
I'm a buyer here.
Otta get a few banksters to jump on this.
Wowser this is getting expensive. Who gonna come up with the cash? The new, soon to be, reserve currency controllers? This is getting downright entertaining.
This China mess just might, maybe, be the big one.
Even if not, hard to go wrong buying SDS calls at this level.
I'll be loading up tomorrow at the open.
Wi Tu Lo
So in the USA crappy economic growth and threats of rising rates is bullish while in China tremendous economic growth and falling interest rates is bearish.
Got it.
$150 Billion? The Mother of all Chinese fire drills?
just liborfix them derivatives prices dude.
wi tu lo
Call the lawyers.
Listening to the bobbleheads on CNBC I always hear how great things are going on in China - so I have to wonder how many greedy fuckers here in the U.S. have some of their own money invested over in China since it's so great. I wonder what they're all thinking now. Screw CNBC, they say stupid shit all day long.
The correct term is bobberheads not bobbleheads.
Sure sign of a crisis. They will keep bullshitting people until it's too late, the chinese crisis just started with this crash.
Capital flight to the US is keeping the dollar strong, but this can not possibly last forever.
Are you ready to eat bark and grass soup!!!!
It doesn't matter what they are worth. Mark to fantasy. Jesus haven't they learned anything from the US banks?
Need help. ZH posted article this year that China made derivatives illegal.
So these could be derivatives outside of China or as you might say OTC Derivatives.
Well...?
What kind are they?
Are they Outside of China?
Are there some illegal and some that are not illegal in China?
Maybe the only China Derivatives allowed in China are Government Derivatives?
If Government Forced Loans out of Hong Kong and other Banks... perhaps there are derivatives as insurance for Chinese Government never paying back Loans from the Broad Banking System?
China Derivatives, what a Bitch!
A lot in HK for sure and probably some in all those "special zone" from Shanghai waiguoqiao to Macao or Shenzhen. Maybe go as far as Singapore. 1 country 20 systems
CHINA IS FINE!
:)
There's a shitload of middle-of-construction buildings on the west coast here that are mostly if not near all purchased ahead of completion by Chinese people/businesses. I have yet to see any word money is trying to get out of that, which would be interesting.
As I've heard locally, in SF it's 25+ buildings higher than the Trans America tower. Berkeley just let their height restriction lapse too, and there's 3 permits already pulled for ~30 story jobs.
say what?
I smell some QE egg foo young in the wok.
Exert from a new agency:(heard on the st.) following the usa example of expansionary monetary policy and in full support of equities, said, lie we do, (the equivalent to SEC in USA), to the china parrot. the made in china emblem will set the bar lower, "cause we have learned from wall st. package the bullshit good, and tell em what they want to hear, and sell and move on to next opportunity".