Futures, options show more signs of opening-up

A green light given to foreign investors regarding investment in China's onshore futures and options market will help elevate liquidity in the domestic derivatives market and provide more asset allocation tools for foreign investors, experts said.

All of the five major Chinese futures exchanges-the Shanghai Futures Exchange, the Zhengzhou Commodity Exchange, the Dalian Commodity Exchange, China Financial Futures Exchange and Shanghai International Energy Exchange-announced late on Friday that qualified foreign institutional investors and renminbi QFIIs are allowed to trade in 23 designated commodity futures, 16 option contracts, and stock option contracts in China.

The announcement was made after China Securities Regulatory Commission Vice-Chairman Fang Xinghai's comments at Friday morning forum on further opening up the country's futures markets. More internationalized commodity and financial futures products should be rolled out, he said.

Luo Xufeng, chairman of Nanhua Futures, said that the highly anticipated opening up of the futures market has provided legal channels via which overseas capital can participate in the Chinese derivatives market. With such deepened opening-up, China will be more influential in terms of commodity pricing. The internationalization of the renminbi will also be thus accelerated, Luo said.

The entry of QFIIs and RQFIIs will bring incremental capital into the Chinese derivatives market. Domestic futures companies may be able to explore new business under such circumstances, facilitating the companies' internationalization, added Luo.

The CSRC, China's top securities watchdog, released in mid-October rules for QFII and RQFII trading in the onshore derivatives market. While permitting these overseas investors to trade commodity futures and options as well as stock option contracts, the trading of the latter should only focus on hedging.

Commodity futures and options opened to QFII and RQFII under the Friday announcement cover nonferrous metals, agricultural products and chemicals.

Analysts from Orient Futures wrote in a report that copper, aluminum and zinc futures and options now accessible to QFIIs are all globally listed, showing high market participation, large scale and frequent trade of physical goods.

During the recent 19th Shanghai Derivatives Market Forum, the CSRC's Fang announced that overseas investors will be allowed to participate in oil and oilseeds futures trading in China. According to the Friday announcement, QFIIs and RQFIIs are now permitted to trade oil and oilseeds futures and options.

The liquidity of oil and oilseeds futures will be thus elevated, while the domestic market will be better linked to international markets, said analysts from Orient Futures.

But they also warned domestic investors of higher market volatility with the inflow of foreign capital. The different ideas and trading logic may lead to price deviations from traditional trends over the short term. Risk management should thus be conducted, the analysts added.

Continued efforts have been made to speed up the opening up of the Chinese derivatives market. To date, seven international futures products have been made accessible to investors all over the world, including futures for palm oil, copper and lowsulphur fuel oil. Yuan-denominated crude oil futures were unveiled in 2018 as the country's first such international product.

Data from the public domain showed that overseas investors have invested nearly 21.3 billion yuan ($3.1 billion) in the above seven international futures products.