China Begins Registration of Stock Index Futures Trading Accounts

By Liu Peng
Published: 2010-02-23

The introduction of China's first stock index futures exchange moved a step closer yesterday when Chinese investors began lodging applications to set up trading accounts. The move followed the country's securities watchdog's approval of a set of rules to regulate the soon-to-be-unveiled futures market.

China Securities Regulatory Commission announced on February 20 that it had given formal approval to the regulations that will govern the running of the new stock index futures exchange. The regulations had been put forward by the China Financial Futures Exchange (CFFEX), the body spearheading the futures market project, but required the regulatory bodies approval.

According to the regulations, individuals will need a minimum investment of 500,000 yuan in order to open an account.

Following the initial announcement of regulatory approval for the new exchange in January, the CSRC said that it would likely take about three months to get the new exchange up and running.

The State Council first gave in principle support to the establishment of a stock index futures market over three years ago and the CFFEX was established as a domestic home for stock derivatives trading in Shanghai in September 2006.

Since then, the exchange has been waiting for official approval to launch.

In related news, two of China's main stock exchanges have also made progress with a pilot project to allow domestic securities companies to introduce margin financing services.

The Shanghai and Shenzhen stock exchanges announced that they were moving forward with preparations for a pilot program that will allow investors to borrow cash from securities brokers in order to buy securities or alternatively borrow equities from securities brokers in an attempt to profit via short selling.

At present, investors in China's domestic stock markets can only profit by betting on rising stock prices.

The two exchanges recently released a list of securities that will be permitted to be traded under the scheme and also outlined the extent to which the various securities will be allowed to be serve as collateral for any loans issued by brokers during the initial stage of the program.

The Shanghai stock exchange specified 50 stocks, while its Shenzhen counterpart listed another 40 which will be eligible for margin trading and short selling respectively. Margin trading will be limited to A shares (excluding those subject to special treatment), funds and bonds listed on the two exchanges' auction trading system.

According to a research report issued by Shenyin & Wanguo Securities Company, the eight stock broking companies most likely to be allowed to pilot the scheme would be: Citic Securities, Guosen Securities, China Merchants Securities, Haitong Securities, GF Securities, Guotai Jun'an Securities, Shenyin & Wanguo Securities and Everbright Securities.

Links and Sources
China Securities Regulatory Commission:
Announcement (Chinese)
China Financial Futures Exchange: Announcement (Chinese)
Shenzhen Stock Exchange: Announcement (Chinese)
Shanghai Stock Exchange: Announcement (English)
Economic Observer: China's Stock Markets Enter New Era