China warns banks on OTC hedge defaults (will default on derivitives if it wants to)

Chinese state-owned enterprises (SOEs) may unilaterally terminate derivative contracts with six foreign banks that provide over-the-counter commodity hedging services, a leading financial magazine said.

China's SOE regulator, the State-owned Assets Supervision and Administration Commission (SASAC), had told the financial institutions that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying.

It did not name the banks or the firms in question, but said Keith Noyes, an official with the International Swaps and Derivatives Association, had confirmed he was aware of the letter to the banks. He declined to comment further to Caijing.

It also cited a SASAC official as saying that almost every SOE involved in foreign exchange or trade had some exposure to derivatives such as crude oil, non-ferrous metals, agricultural commodities, iron ore and coal, although only 31 SOEs were licensed to do so.

SASAC took over the job of overseeing SOEs' derivatives trading from the securities regulator in February after several Chinese firms reported huge losses from derivatives, and quickly tightened the rules, ordering firms to quit risky contracts and report their positions on a quarterly basis.

In January, Air China (601111.SS: Quote, Profile, Research) (0753.HK: Quote, Profile, Research), Shanghai Airlines (600591.SS: Quote, Profile, Research) and China Eastern (600115.SS: Quote, Profile, Research) reported book losses of almost $2 billion on aviation fuel hedging contracts, the official Xinhua news agency said at the time.

For more details on China's derivatives regulation, please click on: [ID:nPEK207347]

http://forums.silverseek.com/showthread.php?p=68753
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From Jim Sinclair:

Dear Comrades In Golden Arms,

China tells the Wall Street OTC derivative manufacturers and distributors to go straight to hell.

China has invoked a "Stop Loss" on these fraud ridden instruments.

If you create a specific performance contract that you know under even the slightest pressure cannot perform, you have committed fraud.

My English bull dog Mia, bless her soul, figured out the non-performance characteristics of these financial WMDs.

This will have a MAJOR impact on the sociopath US manufacturers and distributors of OTC derivatives like CDSs that struck the world over with these weapons of mass financial destruction.

This could roll the financial world one more time.

Doing the right thing is never easy. Doing the right thing takes character and courage.

The Chinese are doing exactly the right thing and exactly what the West should have done years ago when long term capital flopped.

Now the rest of the BRIC nations will follow suit.

China's actions here are another reason why China is headed for the largest economy on the planet.

While the West enriches the creators of this disaster, China herein tells them, to go straight to hell, and that they will not get their money to enrich themselves more. China has invoked a "Stop Loss."

Here is an example of how China will act with regards to the dollar late this fall. You can take that to the bank if you can find a solvent one in the USA, GB or Euroland.

The Wall Street types who are talking heads surmise that China thinks and will act like the Wall Street Weenies. They are so very WRONG.

Screw with China and you will get bitten in the ass by a real dragon. China leads the BRICs.

This will have a MAJOR impact on the sociopath USA manufacturers and distributors of OTC derivatives that struck the world over with these weapons of mass financial destruction, enriching themselves in the process by many trillions.

If China's banks were the losers on these instruments then the winners, now not getting paid, are the sociopath USA manufacturers and distributors of OTC derivatives. These instruments were not created between Chinese banks, but made and packaged primarily in the good old US of A. Think it out. This is a stop loss for the Chinese.

I was correct 10 years ago when people denigrated me. I am correct on the price of gold as people still denigrate me.

I will have the last word with all these jealous fools.

Respectfully yours,
Jim

Red China is a large and arrogant totalitarian state. Trying to do business with such an entity as if it were just another nation is foolishness beyond belief. They have sold us poisonous foods; they proclaim their willingness to renege at will on contracts; they prop up other disgusting totalitarian states such as North Korea and Burma.

We should have long ago ceased all normal trading relationships with the PRC. Unfortunately, with the Kenyan Clown and his red circus running things, we will undoubtedly do nothing except entangle ourselves more with this disgusting state.

I believe these are commodity contracts:

Chinese state-owned enterprises (SOEs) may unilaterally terminate derivative contracts with six foreign banks that provide over-the-counter commodity hedging services, a leading financial magazine said. ... It also cited a SASAC official as saying that almost every SOE involved in foreign exchange or trade had some exposure to derivatives such as crude oil, non-ferrous metals, agricultural commodities, iron ore and coal, although only 31 SOEs were licensed to do so.

I can only guess that these are not straight forward commodity futures contracts as we know them. These are complicated derivatives layered on top of them.

I wish I knew more
Because China wants to use futures markets for its commodity plays. The BRIC nations have been railing against our (USA) financial gamesmanship....saying it has put the world economy in danger. This is what I see here. China rebelling against complex derivatives and the wise guys who make money off them

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