Deregulation of China’s derivatives market gives rise to myriad of opportunities
As China’s derivatives market undergoes deregulation, regulators are expected to keep a close watch on the market to prevent speculative trading that has resulted in major losses in the past. September 10, 2012 | Levina LimThe Chinese derivatives market is progressing in a slow but sure direction of market deregulation. The release of China’s 12th five-year plan (2011-2015) in 2011 specified the need for China to reform its financial system in line with the country’s endeavours towards greater liberalisation and growth of the market economy. The Chinese authorities’ prior efforts to regulate the market had resulted in a strict derivatives trading market to curb speculation (which has plagued its domestic capital market) and ensure market stability. A series of changes are being made on this front. Chinese corporations are now allowed to trade overseas derivatives. So far, six brokers have been given permission by regulators to establish overseas branches, and three to provide overseas derivatives trading services to domestic corporations. Prior to the 2010 review on derivatives trading by the China Banking Regulatory Commission (CBRC), Chinese banks were not permitted to trade over-the-counter derivatives with international investment banks. The trading of certain types of derivatives such as commodities and equities were also forbidden. Exchange fees and margin requirements were tightened on the futures market in November 2010, resulting in sharp drops in volumes. The Shanghai Futures Exchange experienced a 57.2% decline in volume, from 300.4 million to 128.5 million. Order placement restrictions were also imposed in order to deter the high proportion of participation by retailers. Subsequently, new rulings have been made, reversing the previous regulatory stance. Adjustments are now aimed at enhancing price discovery, hedging, and market efficiency. By decreasing transaction costs, exchanges hope to attract stronger volumes. For example, the Qualified Foreign Institutional Investor (QFII) program now allows licensed investors to trade renminbi “A” grade shares in the Shanghai and Shenzhen stock exchanges, granting licensed QFII investors a sum of US... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: China, Exchanges, Markets & Exchanges, Trading & DataChina,Exchanges,Markets Exchanges,Trading & Data, China,Exchanges,Markets & Exchanges,Trading & Data, Keywords:OTC Derivatives, CBRC, HFT, QFII, Shanghai Futures Exchange, ETD, Shenzhen Stock Exchange, CITIC Securities OTC Derivatives, CBRC, HFT, QFII, Shanghai Futures Exchange, ETD, Shenzhen Stock Exchange, CITIC Securities
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