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The Chinese stock index futures may be open to the foreign institutional investors in the future.
China Securities Regulatory Commission (CIRC) published the “Guideline for the Qualified Foreign Institutional Investors to Get Engaged in Stock Index Future Trade (Draft Version for Suggestions)” (hereafter the “Guideline” for short). The new rule may allow the qualified foreign institutional investors (QFII) to take part in the stock index futures trade. However, it sets up limitations over the types and actions of trade and builds consummate supervision system to keep away the risk.
The issuance of the “Guideline” marks the completion of a series of policies that supervise and control the institutional investors’ engagement in stock index future trade. As the watchdog introduces, the domestic investors lack the experience related with the stock index futures trade, which is China’s first financial future product in recent years. In order to keep the stable operation of stock index future market, the CIRC works out the principal of “gradually open, limited participation and controllable risk” which the QFII shall follow when getting engaged in the stock index future market. Under this principal, QFII should get into the stock index future trade with the goal of meeting their own demand of assets risk control and should not get engaged in arbitrage and speculation trade. Therefore, QFII’s engagement in stock index future trade is only limited to hedging and they can not make use of stock index future to issue derivative products in the overseas market.
The “Guideline” defines that China Financial Futures Exchange should require the QFII to submit future hedging programs and other relevant files before approving their application. In addition, the institution should regularly supervise and check the stock index future trading activities of the QFII.
Furthermore, the “Guideline” limits the scope of stock index future that QFII can invest. It is stipulated that the value of stock index future held by QFII should exceed the investment quota approved by the State Administration of Foreign Exchange within the trade period. The said value of stock index future held by QFII refers to the total amount of long position and short position. The balance between long position and short position can not be offset. The trade volume of stock index trade future refers to the total amount of short covering and short position while closing transaction is excluded.
The issue of how many future trading companies can be chosen is under heavy scrutiny. The “Guideline” stipulates that each QFII can entrust at most three domestic future trading companies to do its business.
In order to simplify the management, the investment quota of QFII should be exchanged into RMB based on the exchange rate between RMB and US dollar on the day when the application is submitted. The investment quota is effective within six months after the approval of the application.
In addition, the “Guideline” makes it clear that the QFII should apply for trade codes for the assets managed by different accounts. Each trade code should be operated independently.
It is introduced that the QFII can submit their applications to the China Financial Future Exchange after the official issuance of the “Guideline”. They could open accounts, apply for investment quota in accordance with the rules. The China Financial Future Exchange should report the situation of how the QFII’s operation goes to the State Administration of Foreign Exchange regularly.
China Securities Regulatory Commission (CIRC) published the “Guideline for the Qualified Foreign Institutional Investors to Get Engaged in Stock Index Future Trade (Draft Version for Suggestions)” (hereafter the “Guideline” for short). The new rule may allow the qualified foreign institutional investors (QFII) to take part in the stock index futures trade. However, it sets up limitations over the types and actions of trade and builds consummate supervision system to keep away the risk.
The issuance of the “Guideline” marks the completion of a series of policies that supervise and control the institutional investors’ engagement in stock index future trade. As the watchdog introduces, the domestic investors lack the experience related with the stock index futures trade, which is China’s first financial future product in recent years. In order to keep the stable operation of stock index future market, the CIRC works out the principal of “gradually open, limited participation and controllable risk” which the QFII shall follow when getting engaged in the stock index future market. Under this principal, QFII should get into the stock index future trade with the goal of meeting their own demand of assets risk control and should not get engaged in arbitrage and speculation trade. Therefore, QFII’s engagement in stock index future trade is only limited to hedging and they can not make use of stock index future to issue derivative products in the overseas market.
The “Guideline” defines that China Financial Futures Exchange should require the QFII to submit future hedging programs and other relevant files before approving their application. In addition, the institution should regularly supervise and check the stock index future trading activities of the QFII.
Furthermore, the “Guideline” limits the scope of stock index future that QFII can invest. It is stipulated that the value of stock index future held by QFII should exceed the investment quota approved by the State Administration of Foreign Exchange within the trade period. The said value of stock index future held by QFII refers to the total amount of long position and short position. The balance between long position and short position can not be offset. The trade volume of stock index trade future refers to the total amount of short covering and short position while closing transaction is excluded.
The issue of how many future trading companies can be chosen is under heavy scrutiny. The “Guideline” stipulates that each QFII can entrust at most three domestic future trading companies to do its business.
In order to simplify the management, the investment quota of QFII should be exchanged into RMB based on the exchange rate between RMB and US dollar on the day when the application is submitted. The investment quota is effective within six months after the approval of the application.
In addition, the “Guideline” makes it clear that the QFII should apply for trade codes for the assets managed by different accounts. Each trade code should be operated independently.
It is introduced that the QFII can submit their applications to the China Financial Future Exchange after the official issuance of the “Guideline”. They could open accounts, apply for investment quota in accordance with the rules. The China Financial Future Exchange should report the situation of how the QFII’s operation goes to the State Administration of Foreign Exchange regularly.