The China Financial Futures Exchange also set an eight percent trading margin, or the percentage of the contract value an investor must pay up front, according to draft rules published Monday. The Shanghai-based exchange was set up last month to introduce products including stock-index and interest-rate futures.

The Chinese mainland is seeking to develop its financial system without increasing volatility in the US$511 billion stock market, where the reintroduction of warrants last year led to complaints of speculative and irrational trading. The proposed price limit is stricter than trading rules in Singapore and Hong Kong.

"Some of the clauses, such as the percentage of the margin, are a bit risk-preventive," said Fan Dizhao, who helps manage the equivalent of US$1.8 billion at Guotai Asset Management Co in Shanghai. "After all, it's a brand new product in China and needs to be prudent in the initial stage."

The price limit for index futures matches the 10 percent maximum movement allowed for stocks listed on the Shanghai and Shenzhen exchanges.

China aims to introduce stock-index futures this year or by early next year, Shang Fulin, chairman of the China Securities Regulatory Commission, said on September 14. The draft rules, published in securities newspapers Monday, didn't say when trading will start.

Index futures may encourage development of more financial products and spur growth of China's US$50 billion fund industry. Fund managers use index futures to hedge portfolios, a cheaper method than buying or selling the underlying stock.

The Shanghai Composite Index has jumped 52 percent this year and its Shenzhen counterpart has surged 57 percent after rebounding from eight-year lows reached last year, encouraging the government to move ahead with equity-based derivatives.

The draft rules mandate a cooling-off period when volatility reaches six percent. Once prices have moved by that amount from the previous close and maintained that level for one minute, trading will be held within that range for 10 minutes, according to the draft rules.

After that period, the 10 percent limit will take effect. The six percent cap won't apply in the last 30 minutes of trading, the rules state.

The contract won't be the first based on China's yuan-denominated Class A shares. Singapore Exchange Ltd began trading index futures based on yuan shares last month, using the FTSE/Xinhua China A50 Index as the underlying gauge.

SSE Infonet Ltd, an information and data unit of the Shanghai Stock Exchange, in August filed a lawsuit against index compiler FTSE/Xinhua Index Ltd, a local venture of FTSE Group, contesting its right to provide information for the Singapore futures contract. The first hearing ended on October 11 in Shanghai, with no verdict announced.