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Rules pave way for financial futures trading

By Zheng Lifei (China Daily)
Updated: 2007-02-09 08:58

Long-awaited new futures regulations, which were approved in principle by the State Council on Wednesday, are an early New Year's gift to the nation's struggling futures industry.

The new rules are expected to give a boost to the local sector as they expand the list of traded futures contracts to include financial futures and futures options.

The State Council also moved to loosen the current tight regulatory regime, which has long been blamed for shackling the development of the futures industry at a time when the need for a well-functioning and vibrant futures market was greater than ever.

Repeated delays in approval of the new regulations, which were expected to be approved much earlier, speaks volumes about the cautious approach the authority has taken.

It is understandable.

The chaos in the futures market in early 1990s resulting from its loose regulatory framework and the high risks associated with futures trading reminded both the regulator and industry players that prudence is needed.

And because financial futures trading usually carries greater risk than commodities trading, it was crucial that the authority take a gradual and cautious approach.

The new rules, though a little late, are better than doing nothing.

There are about 400 futures contracts traded worldwide, but the number is only 13 in China, which greatly curtails the scope and activity of what could be a dynamic market.

The tight regulatory framework and the limited number of futures products available have deprived many Chinese enterprises of effective tools to manage their business risks and leaves them exposed to price fluctuations for raw materials in global markets.

And as the local economy is increasingly integrated with world economy, risks from exchange rate and interest rate fluctuations are also rising.

The new rules will allow the introduction of financial futures products, which could pave the way for the launch of such contracts in the country.