The news follows a meeting between the Asian country and
the US on May 26. It has not yet announced the date from which
it will allow trading to happen.
China’s decision was confirmed following the
close of the Strategic and Economic Dialogue meeting held
"China will permit qualified foreign-invested firms duly
incorporated in China to carry out stock index futures business
in accordance with relevant laws and regulations and will allow
QFFI to invest in stock index futures products," the two
countries said in a joint statement.
Though the US has pushed for the regulatory changes in
China, none of the 95 registered QFII firms headquartered in
the US will be able to trade the index contact until the
Commodity Futures Trading Commission gives clearance. Under US
law, foreign boards of trade that wish to permit their US
members and other participants in the country to have direct
access to their electronic trade matching system, not through
an intermediary, must request
relief from the CFTC’s
Division of Market Oversight.
The impact of the move will depend on the rules the
country’s regulator imposes on the foreign
The country’s financial regulator, the Chinese
Securities Regulatory Commission, last month sent draft
guidelines for the expansion of the types of firms allowed to
trade the index derivatives to the market.
According to the draft, the CSRC will only allow the QFII
firms to trade the index future for hedging purposes.
But further clarification is needed on which A-share
positions could be hedged using the CFFE’s CSI 300
futures under these rules.
A China-based market source said that the rules proposed by
the regulator have left the QFII firms unsure how many
contracts the foreign firms would be able to trade.
"The index futures contract value shall not exceed the
approved QFII quota on the end of each trading day," read one
condition of the CSRC proposal, while the third condition read:
"The index futures contract value shall not exceed the entire
investment quota on the end of each trading day."
The quota will be decided upon by the State Administration
of Foreign Finance. The source said that the QFII firms need
clarification on whether these conditions refer to existing A
share quotas or whether the authorities will impose a separate
Dean Owen, China chief representative in
Newedge’s Shanghai representative office, said
that he believes the impact on trading volumes of the QFII
participation will be determined by the quota imposed on the
"The existing total QFII quota is less than $20bn, so if the
futures limit is a percentage of that then I
wouldn’t expect it to have too much of an impact
of trading volumes," Owen said.
The CSI 300 trading volumes have been high since they were
launched on April 16, and throughput is growing. Average daily
volume is now above 300,000 contracts despite heavy
restrictions placed on the contract by the CSRC prior the
While volumes are soaring, the pattern of open interest in
the contract suggests that there is a lot of intraday
Market commentators have suggested that Chinese traders may
have adopted this approach to trading the contract because of
the lack of hedging tools to hedge overnight international
stock market movements.
Owen said he believes one area where the presence of QFII
firms in the market is likely to be noticed is in the level of