China to allow futures and options trading

China allow trading in financial futures contracts and options as it seeks to spur development of the nation's capital markets and provide more choice to investors.

Brokerages at least 30 million yuan (US$3.9 million) in capital to trade futures contracts and options for interest rates, the yuan and equity indexes, according to State Council rules, published in the China Securities Journal yesterday.

The rules, which take effect from April 15, pave the way for index futures and options to trade on Shanghai's seven-month-old derivatives exchange. Chinese stock regulator Shang Fulin (尚福林) is trying to widen the investment options for 33.5 billion yuan of deposits in a stock market where transactions last year equaled almost half of the nation's US$2.55 trillion economy.

"China needs more financial instruments to help investors cut risks," Shang said last week during the annual meeting of the Chinese legislature in Beijing. "A deeper and broader capital market is integral to the healthy development of China's financial markets."

China's futures brokers are currently restricted to earning fees by trading commodities for clients on the nation's US$2 trillion futures market.

Under new rules, brokerages will still be barred from buying or selling futures contracts for their own accounts. They must also meet government standards for risk control, net assets, capital, debt-to-asset ratios and working assets.

China's markets have tripled in value since the end of 2005 to more than US$1 trillion, encouraging regulators to push forward plans for equity-based derivatives. China on Sept. 8 set up the China Financial Futures Exchange in Shanghai in preparation for the start of trading in index futures.

New exchanges can be set up only with the approval of a regulator controlled by the State Council, according to the rules published yesterday. The government in 1999 cut the number of futures exchanges to three from 14 to curb excessive speculation.

The latest regulations come shortly after the central bank authorized qualified foreign futures companies to form ventures with Chinese brokerages. Domestic brokers can also start overseas futures businesses in Hong Kong, the People's Bank of China said on Friday.

China's futures exchanges in Shanghai, Dalian and Zhengzhou now trade contracts only for commodities, including copper, aluminum, rubber, fuel oil, soybeans, corn and sugar.