Authors: Zhu Liangtao and Han Wei

Posted on: Caixin Global, February 16th, 2017


China relaxed rules on transaction size and trading costs for stock-index futures in a move to revive the market after harsh restrictions brought trading almost to a halt after the 2015 market meltdown.

The China Financial Futures Exchange (CFFEX) said on its website late Thursday that it will reduce trading commissions, lower margin deposits for non-hedging accounts and double the daily cap for opening new positions beginning Friday.

The easing of controls on stock-index futures signals that China’s stock market has returned to normal, said Li Daxiao, chief economist at Shenzhen-based Yingda Securities, on social media. Stock-index futures provide a tool for investors to hedge against risk while helping to rationalize market prices, he said.

In its statement, the CFFEX said it would adjust trading rules “in a gradual and orderly” manner. The exchange also said it would continue reining in excessive market speculation, enhancing cross-market supervision, cracking down on illegal trading and strengthening risk education among futures market investors.

For index futures linked to the CSI 300 Index and SSE 50 Index, the CFFEX will lower margin requirements for non-hedging accounts to 20% from 40%. The requirement for small-cap CSI 500 futures will drop to 30% from 40%, according to the statement.

The limit on new position opening for non-hedging accounts will double from 10 to 20 per day. Anything above that would be considered “abnormal” trading activity and be subject to penalties.

The exchange said it would also cut trading commissions for contracts opened and settled on the same day to 0.092% of transaction value from the previous 0.23%.

A fund manager said investors have been expecting the news and the easing of restrictions will encourage trading.

Although trading limits remain, several futures industry sources said the adjustments are positive signals for a revival of the stock-index futures market.

The announcement came about 18 months after stock-index futures became the target of a crackdown as regulators questioned whether futures derivatives trading exacerbated the 2015 stock market crash. China’s stock market lost more than 40% of its value in the collapse.

In August and September 2015, the CFFEX introduced new rules requiring all investors trading stock-index futures — whether they were doing so to hedge risk or not — to increase deposits with brokers from 10% to 40% of contract value. Commission charges for daily purchases and sales were raised from 0.015% of transaction values to 0.23%. Also, the daily cap of 10 new positions was imposed.

The rules were the harshest since the introduction of stock-index futures by the China Securities Regulatory Commission in 2010. Trading in index futures linked to the CSI 300 in June 2016 dropped by 99.5% from the June 2015 level, according to the CFFEX. Trading volume of futures linked to the SSE 50 fell by 99.3%, and CSI 500 futures, by 97.4% compared with a year earlier.

Several sources with knowledge told Caixin in late January that regulators were considering unwinding the limitations on index futures trading after investigations failed to find evidence that such derivatives worsened the crash.


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