China is likely to issue a new version of futures regulations before the end of this year, a move that will pave the way for the country to officially launch its long-anticipated financial futures.
"(The regulations are) expected to be issued around the New Year," said Hu Yuyue, an expert who has been involved in the regulation draft process.
The new rules will, for the first time, allow for the launch of financial derivatives trading, which could pave the way for the country to offer long-discussed stock index futures on the Shanghai Financial Derivatives Exchange.
"The timing (of the rules) is widely believed to be related to upcoming trading of stock index futures," said an industry insider on condition of anonymity.
The stock index futures, which are the first financial derivative future products planned in China, are expected to debut on the Shanghai Financial Derivatives Exchange, which was set up this year, industry players said.
Under the new regulations, only futures brokerages will be allowed to trade financial futures, a provision that has seen a series of takeovers of futures brokerages by securities firms as they seek to get a foothold in financial futures trading.
However, the new rules will bring an Introducing Broker (IB) arrangement for the securities firms, under which securities firms could indirectly involve themselves in financial futures trading by introducing their clients' business deals to futures houses in exchange for a commission.
Qualified domestic futures brokerages will be allowed to trade overseas futures and conduct proprietary futures trading if they meet certain requirements, the new rules will likely say.
But the permission for futures brokerages and other entities to set up futures funds, which were included in the draft rules, were dropped in the final version, according to Hu.
"The omission is unfortunate and it will probably be a severe blow to the futures market," said Hu, director of the futures research institute at Beijing Technology and Business University.
"Futures markets have long been plagued by the shortage of capital and the establishment of futures funds has long been expected by the industry as a way to change that," Hu said.
"The industry has long hoped that the revised rules would greatly loosen the present tight regulatory regime, but it seems that has not come true with the new rules," said a research fellow with China International Futures Co Ltd.
The current rules governing the futures industry were enacted in 1999.
The government is mulling over a plan to create a unified futures-trading regulator, a senior official said earlier this month.
The new supervisory body will draw representatives from relevant government bodies, stock exchanges and industry associations, said Zhou Zhengqing, former chairman of the China Securities Regulatory Commission.
(China Daily December 13, 2006)