China sets index futures trading rules to limit risk

By Reuters Staff
January 15, 2010

BEIJING/SHANGHAI, Jan 15 (Reuters) – China’s securities regulator is seeking to set a high bar on allowing ordinary investors to trade the country’s new financial instruments such as stock index futures, it revealed on Friday.

Though its economy is growing rapidly, China has lacked the more sophisticated financial tools of foreign markets that might help it manage unanticipated domestic stock price moves, often resulting in violent selloffs and sudden rises that can hurt ordinary investors.

“Index futures are a mature product on global markets but in our country’s emerging market we must consider the reality and stick to the principle that only relevant investors should participate,” a spokesman with the China Securities Regulatory Commission said.

The CSRC draft regulations stated only qualified futures firms can open accounts for retail and institutional investors to trade the index futures.

Among the rules governing individuals wishing to trade index futures, investors must have 500,000 yuan ($73,250) to open a new account and must pass an examination on futures trading.

The CSRC also said in a draft document on its website (http://www.csrc.gov.cn , for a Bing translation to English, click here) that institutional investors wanting to trade equity index futures must have experience in commodity futures.

“Index futures are professional, of high leverage and risky, requiring participants to have high expertise, strong financial strength and ability to bear risk, and are not suitable for ordinary investors to participate in on a large scale,” the CSRC spokesman said.

The government last week approved in principle the use of tools vital for hedging that are commonplace in many sophisticated markets, such as short selling, stock index futures and trading on margin.

Index futures, which will be traded on the China Financial Futures Exchange in Shanghai, will take about three months to start up, while the trial period for margin trading and short selling will come relatively soon, the CSRC said.

According to the CSRC, the futures companies must be sure the following conditions are met for individuals and institutions who want to trade index futures:

Individuals:

– Must have at least 500,000 yuan in one individual’s account for margin requirements to open an account to trade index futures;

– Must have passed relevant examinations on futures trading;

– Must have participated in mock trading in index futures for at least 10 days and conducted at least 20 mock transactions;

– Must not have any record of serious violations of securities rules.

 

Institutional investors:

– Must have at least 1 million yuan in net assets;

– Must have at least 500,000 yuan in one institutional account for margin requirements to open an account to trade index futures;

– Must have professional futures trading personnel, who have passed relevant examinations;

– Must have participated in mock trading in index futures for at least 10 days and undertaken at least 20 mock transactions. Alternatively, must have concluded at least 10 deals in commodity futures transactions over the past three years;

– Must not have any record of serious violations of securities rules.

(Reporting by Lu Jianxin and Alan Wheatley; Writing by Kevin Plumberg; Editing by Greg Mahlich) ((Reuters Messaging: kevin.plumberg.reuters.com@reuters.net Email: kevin.plumberg@thomsonreuters.com; 8610-6627-1215)) ($1=6.826 Yuan)

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