Index futures a step closer

(China Daily)
Updated: 2007-12-19 10:32

The Shanghai-based China Financial Futures Exchange (CFFEX), where the mainland's first index futures product is to be traded, has approved 52 member companies, a major step toward launching the CSI300.

The futures companies were brought into the exchange system in four batches from late October.

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Stock Index Futures 

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Of the 52, seven are all-round clearing members, 27 trading clearing members and 18 are trading members.

A trading member can only serve as a broker for investors, while a trading clearing member is allowed to conduct clearing business for its own clients.

Crucial to the whole trading process, clearing facilitates the matching of trades, ensures smooth deliveries and keeps track of counter-party risks arising from margin trading.

Under the exchange's trading rules, all-round clearing members can act not only for their own clients but also for other futures companies.

In March, the China Securities Regulatory Commission (CSRC) set the registered capital threshold at 50 million yuan for a futures firm to operate a clearing business, higher than the 30 million yuan required for commodities trading.

Only registered commodity futures companies with well-established trading records and demonstrable expertise can apply for CFFEX membership to trade financial futures.

At the top of the exchange's system are the special clearing members, mostly commercial banks, that can conduct clearing transactions for all other categories of members.

Industry experts and analysts say most prospective trading members would prefer to use special clearing members, the commercial banks, as their agents, rather than the all-around clearing members. This is because futures companies acting as trading members could expose client information to the all-clearing members, who are also futures companies, and they could lose their competitive edge in the market.

No special clearing members have been approved yet.

China Minsheng Bank has finished setting up its clearing facilities to connect the bank's margin depository center, the exchange, futures companies and margin monitoring centers.

Analysts said faster preparation by commercial banks could expedite the introduction of index futures trading.


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