China is mulling the biggest changes to its futures market since 2015, an overhaul that would give global investors unprecedented access, make it easier to execute bearish trades, and lay the groundwork for wagers on stock-market volatility.
The proposed changes, still under discussion by regulators, would remove a ban on unhedged bets against the market and allow foreigners to trade equity-index and commodity futures without a government-approved quota, according to people familiar with the matter. The China Financial Futures Exchange is also considering a new range of products, including futures on the MSCI China A Index, the people said. The bourse plans to introduce an equity volatility index that may eventually serve as the basis for derivatives contracts.
The proposals suggest China is pushing ahead with efforts open its financial system, despite an intensifying trade war with America. Looser restrictions on index futures would not only breathe life into a market that regulators effectively killed during a haphazard crackdown in 2015, they would help attract overseas inflows at a time when China needs all the foreign capital it can get. Even after the country’s domestic shares won entry into MSCI Inc.’s global indexes, some international investors have been reluctant to increase their exposure because of a dearth of hedging tools.
There’s no clear timetable for the new rules to be introduced, but preparations by regulators and exchanges have gathered pace in recent months, said the people, who asked not to be named because the discussions are private. While contracts linked to crude oil, iron ore and purified terephthalic acid are already fully open to foreigners, the changes would expand access to the entire commodity futures market, they said.
The China Financial Futures Exchange declined to comment. The China Securities Regulatory Commission didn’t immediately reply to a fax seeking comment.
Futures-related stocks surged. China CIFCO Investment Co. rose as much as 7.7 per cent while Jiangsu Holly Corp. gained 4.4 per cent in Shanghai.