A Chinese official is reported to have revealed that the State Council will allow some futures companies to do a certain type of futures trading on the overseas market by cross-market arbitrage practices.

Zhang Huibang, deputy director of the Futures Supervision Department of the market watchdog the China Securities Regulatory Commission (CSRC), made the announcement on Wednesday at a meeting in Shanghai, according to domestic media reports.

He told China Daily on Friday the report was "basically accurate but still needs some adjustment."

He did not elaborate further.

He also said the implementation of the policy needs the joint efforts of other government departments, especially the State Administration of Foreign Exchange.

Currently, there are certain restrictions in place curtailing Chinese organizations' participation in the international futures market. Only some big State-owned enterprises (SOEs) can conduct futures trading in overseas markets through foreign agencies. 

These restrictions narrowed the business scope of domestic futures agencies, said Liu Tao, a member of the China Futures Association (CFA).

Statistics by the CFA show that transactions on China's three commodity exchanges in Dalian, Shanghai and Zhengzhou suffered great falls in the first five months of this year.

Falling transactions lead to the loss of the country's futures agencies due to insufficient brokering income.

Allowing some domestic futures agencies to conduct overseas arbitraging practices will save the market share for them, said Liu.

It will also help to keep domestic business secrets, which are often taken advantage of by speculators, Liu said.

At present, the "certain type of futures" has yet to be selected and market observers say it could be copper.

China has only eight types of futures on the domestic market - copper, aluminium, natural rubber, and crude oil on the Shanghai Commodity Exchange, soybeans and bean dregs in Dalian and wheat and cotton in Zhengzhou.

Industry sources said CSRC would classify the management of domestic futures companies. Future agencies would be classified into three or four categories and thresholds set up for each class according to the asset quality, financial soundness, operational efficiency, and risk control.

Those in the higher class are expected to get more policy support in terms of future development and business scope.

The classified management will enhance the futures market reshuffle and improve the sector's competitiveness, said Jiang Ming, a futures agency member of staff in Zhengzhou.

(China Daily June 18, 2005)