THE China Foreign Exchange Trade System has won regulatory approval to form a money-markets brokerage with London's ICAP plc, officials told a conference yesterday.

The joint venture - Shanghai CFETS-ICAP International Money Broking Co Ltd - will provide broker services for the money, bond and derivatives markets in the yuan and foreign currency markets. It is the second money broker in China following Tullet Prebon SITICO (China) Ltd.

London-listed ICAP, the world's largest inter-dealer brokerage, holds a 33 percent stake in the joint venture.

CFETS, also known as the National Interbank Funding Center, is a unit under the central bank. It has a 67 percent stake in the new firm, which is backed by 60.89 million yuan (US$8.11 million) in registered capital.

"The establishment of the JV is an important step forward in China's rapid opening of an inter-dealer market," said Li Yu, vice president of CFETS and chairman of the joint venture.

Mark Yallop, chief operation officer of ICAP, said the new company will help improve price transparency and increase trading volume in the yuan market. The JV will focus on currency deposits, yuan deposits, bond repurchases, cash bonds and interest rate swaps in the next 12 to 24 months.

Tullett Prebon and Shanghai International Trust & Investment Corp Ltd in November 2005 set up the first inter-dealer brokering business joint venture in China to provide services to Chinese banks and financial institutions and to locally licensed operations of multinational investment banks.

Inter-dealer brokers are allowed to trade financial products for their customers in foreign exchange, money, bond and derivative markets.

China is working to advance the development of inter-dealer markets, including short-term bills, bond repurchases, interest-rate swaps as well as innovating financial products to meet the needs of diversified investors and help institutions hedge risks.

The central bank last month launched trading in the interbank foreign-exchange market to allow yuan currency swaps with the US dollar, the euro, the yen, the Hong Kong dollar and the British pound.