China’s securities and foreign exchange regulators are preparing to allow more foreign investors to trade domestic stock index futures, said two people with direct knowledge of the matter.
JPMorgan Chase & Co. (JPM) is among companies that may win approval to trade the futures as soon as this week, said one of the people. The individuals asked not to be identified because they weren’t authorized to speak publicly about the matter.
The new approvals would be the latest step China has taken to give foreign investors greater access to its capital markets after the ruling Communist Party pledged in November to promote freer movement of funds in and out of the country and to make the exchange rate more market-based. China in January approved the first batch of five foreign investors to trade the index futures, including Credit Suisse Group AG and Morgan Stanley.
“If the market is too small, the value of stock index futures as a hedging and price discovery tool can’t be fully realized, so it’s good to bring in more participants,” Zhang Yanbing, an analyst at Zheshang Securities Co. in Shanghai, said by telephone today.
JPMorgan China spokeswoman Lisa Liang declined to comment. Two phone calls to the press office of the State Administration of Foreign Exchange went unanswered. The China Securities Regulatory Commission didn’t immediately respond to a phone call and a faxed request for comment.
The foreign investors approved for index futures were already allowed to trade domestic stocks and bonds through the Qualified Foreign Institutional Investor program. China more than doubled the total amount of funds able to be invested through QFII to $80 billion from $30 billion in April 2012.
More than 200 institutions had obtained QFII status as of February, according to the securities regulator. Participants in the program have received approval from the foreign exchange regulator to invest a combined $40.84 billion in China’s capital markets. The market value of stocks trading in China was $3.17 trillion as of yesterday, according to data compiled by Bloomberg.
“There had been concerns that if we let QFIIs trade stock index futures, that this may lead to more short-selling on the market but the size of the QFII funds allowed to trade stock index futures is very limited, so that shouldn’t be a problem,” said Zheshang Securities’s Zhang.
The country started stock index futures trading on the China Financial Futures Exchange in Shanghai in 2010, enabling investors to hedge their positions when the market declines. The futures are based on the CSI 300 Index (SHSZ300), which tracks the 300 largest companies listed in Shanghai and Shenzhen. China has Asia’s worst-performing major stock market over the past three years.