China may allow securities houses to trade financial futures
contracts as early as this month but will likely restrict the
business to brokers that have strong capital, industry sources said
on Tuesday.
Selected securities firms will also be able to introduce brokers
to futures companies for a commission, according to the
sources.
Authorities are also looking into letting mutual funds,
insurance funds and qualified foreign investors join futures
brokers in tapping the potentially lucrative business.
Financial regulators are on track to launch the country's first
stock-index futures contracts on its new financial derivative
bourse by the end of the first half of the year.
Securities houses should have at least 1.2 billion yuan
(US$155.23 million) in net capital before they can apply for
licenses that allow them to introduce brokers, the sources said,
citing a document which regulators are seeking industry
opinions.
Candidates must also control a futures subsidiary and have
capital that accounts for not less than 70 percent of net assets,
according to the sources.
"Regulators think trading of financial futures contracts is not
for everyone," said a Shanghai-based brokerage source. "In the
initial stage, only big players with sufficient capital and proper
risk controls will probably be interested."
China's capital market has long lacked a mechanism to permit
investors to bet on declines in share prices to gain a profit,
making it hard for investors to hedge against trading risks in a
bear scenario.
Regulators are also set to allow brokers to lend money or
securities to investors as early as this year to bolster liquidity
and introduce short selling to help curb market volatility.
Earlier media reports said that several qualified foreign
institutions will likely be approved to trade index futures among
the first batch of investors as the regulator seeks to tap overseas
expertise.
Initially, mutual funds will likely trade the derivatives via
futures brokers and may later be qualified to apply for separate
licenses, according to the sources.
(Shanghai Daily April 4, 2007)