In a major step toward introduction of financial futures trading, the China Securities Regulatory Commission (CSRC) has licensed the first two commodity futures companies to operate brokerage business in financial futures.

 

The two companies, Beijing Yin Jian Futures Co Ltd and Shanghai Jiu Heng Futures Brokerage Co Ltd, are believed to have won the CSRC approval for their well-established security record of business operation and credible mechanism of risk management, market sources said.

 

Guo Zhinan, deputy manager of Shanghai Jiu Heng Futures Brokerage Co Ltd, said the approval was an indication of his company's efforts to meet the high standard of risk management and operational integrity demanded by the China Financial Futures Exchange (CFFEX).

 

"A stable growth potential is our competitive edge, although our current turnover scale is not as big as some other futures companies," Guo said.

 

Many more commodity futures companies are expected to be licensed in the coming months, sources said. There are around 160 commodity futures companies in the country and many of them have applied for a license.

 

CFFEX hasn't specified the target date for the launch of trading in stock index futures, the first product. But industry insiders said preparations for the opening, including mock trading sessions to help familiarize traders, have been on for months.

 

The licensing of the first two commodity companies indicates the CFFEX's membership system is taking shape.

 

"Specifying the exchange's membership system is an important part of preparing for the final launch of the index futures and the approval of broker members is the initial step," said Li Jingyuan, an analyst with Hai Fu Futures Co Ltd.

 

In addition to broker members, there are also trading clearing members and all-round clearing members within the CFFEX membership system.

 

A trading clearing member is allowed to conduct clearing business for its clients, without having to clear the transaction through the all-round clearing members, who are qualified institutions like banks and other futures companies.

 

(China Daily July 17, 2007)