Speaking at FOW’s inaugural China and the Global Derivatives Market Development Forum, held in Dalian, northern China in association with the Dalian Commodity Exchange, Jiang Yang, assistant to the Chairman at the Chinese Securities Regulatory Commission, said that China recognised the importance of international participation in both the new CSI 300 contracts and commodity derivatives, which currently dominate trading in China.
This year, Qualified Foreign Institutional Investors will begin trading CSI 300 futures contracts on the China Financial Futures Exchange, a move that Jiang said would pre-empt a gradual opening up of China’s derivatives markets.
He added: “The Chinese futures market has seen safe and stable operation over the past years, with market innovation propelled in an orderly way and roles of the market played remarkably.
“All this marked a sound development of the market. In the next stage, the China Securities Regulatory Commission (CSRC) will ensure a steady and healthy futures market by continuously reinforcing regulation and boosting innovation.”
During the 1990s the main Chinese regulatory body for exchange-traded derivatives , the China Securities Regulatory Commission, took drastic action to clamp down on what it viewed as unruly trading in derivatives. Over the course of two “Rectification” programmes, the CSRC cut down the number of exchanges from 40 to three and the number of contracts from 55 to 12.
Today there are four exchanges: the Dalian Commodities Exchange, the Zhengzhou Commodities Exchange, the Shanghai Futures Exchange and the recently launched China Financial Futures Exchange trading 26 contracts, all in the commodities sector with the exception of the CSI 300 index contract traded on the China Financial Futures Exchange.
Regulation surrounding the launch of new contracts is rigid with the government approving just one contract per exchange per year to launch. In addition, foreigners are currently unable to access the Chinese derivative markets, although the QFII programme will change this.
Despite the low contract numbers, purely domestic participation and high trading costs, volumes in China have soared in recent years rising from 161m contracts traded in 2005 to 1.5bn last year.
Options trading, however, may take more time. All the exchanges currently have proposals lodged with the CSRC to launch options on some of their contracts but, like many things in China, approval is likely to take time with one exchange head predicting that it could take up to ten years before options are traded on Chinese exchanges.
Speaking at the forum, Li Zhengqiang, executive vice president of the China Financial Futures Exchange, said: “We are in the transition from a planned to a market economy. As an emerging market, we have to draw on market mechanisms of more sophisticated markets. There is big room for expansion.”
Yang Maijum, president and chief executive of the Shanghai Futures Exchange, added: “Internationalisation is an inevitable trend and the opening of the capital markets is an integral part of reform in China.”