China came up with a brilliant way to curb derivatives trade.

[touchring]

A method that will work straightaway.

http://www.reuters.com/article/rbssF...47327420090831

BEIJING, Aug 31 (Reuters) - A report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades provoked anger and dismay among investment bankers on Monday as they feared it may set a damaging precedent.


The State-owned Assets Supervision and Administration Commission, the regulator and nominal shareholder for state-owned enterprises (SOEs), told six foreign banks that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying in an article published on Saturday.

[MulaMan]

Re: China came up with a brilliant way to curb derivatives trade.

A method that will work straightaway.

http://www.reuters.com/article/rbssF...47327420090831

Don't worry, the US Treasury will bail those "investors" out.

[jk]

Re: China came up with a brilliant way to curb derivatives trade.

i love that line: "SOEs reserved the right to default on contracts." certainly any individual or entity can default on a contract anywhere in the world. the problem is enforcing the contract via a court of law.

otoh, this is also why china cannot take over the role of global finance center: no enforceable contracts or property rights as long as the ccp retains all control.

[hayekvindicated]

Re: China came up with a brilliant way to curb derivatives trade.

i love that line: "SOEs reserved the right to default on contracts." certainly any individual or entity can default on a contract anywhere in the world. the problem is enforcing the contract via a court of law.

otoh, this is also why china cannot take over the role of global finance center: no enforceable contracts or property rights as long as the ccp retains all control.

The smarter commodity trading houses already insist on daily margining for all derivative contracts with Chinese counterparties (whether state owned or not). If they default on margin payment on any day, they get closed out.

Its only the stupid and greedy (or both?) that will allow exposures to get racked up and then find they cannot recover the amounts due.

Incidentally, Singapore has a golden future for precisely this reason.

[WildspitzE]

Re: China came up with a brilliant way to curb derivatives trade.

i love that line: "SOEs reserved the right to default on contracts." certainly any individual or entity can default on a contract anywhere in the world. the problem is enforcing the contract via a court of law.

otoh, this is also why china cannot take over the role of global finance center: no enforceable contracts or property rights as long as the ccp retains all control.

Couldn't have put it better myself.

The bold made me LOL.

[touchring]

The smarter commodity trading houses already insist on daily margining for all derivative contracts with Chinese counterparties (whether state owned or not). If they default on margin payment on any day, they get closed out.

Its only the stupid and greedy (or both?) that will allow exposures to get racked up and then find they cannot recover the amounts due.

Incidentally, Singapore has a golden future for precisely this reason.

2 foreign banks lost $50million in Singapore when the courts rejected their claim against a company with links to the state for $50 million stolen in a bank loan fraud perpetuated by the head of finance of some sort of that company.
http://www.straitstimes.com/Breaking...ry_424432.html

The conclusion is, "You asked for it".

The law won't protect you if you don't exhaust all available means to protect yourself - the signed contract means nothing. The same goes with commodity trading houses. If they lose money by giving too much credit, they are negligent and asked for it.

[blazespinnaker]

Re: China came up with a brilliant way to curb derivatives trade.

A method that will work straightaway.

http://www.reuters.com/article/rbssF...47327420090831

More like a brilliant way to curb investment in China. Remind me to exit all my Chinese equities..