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China Regulator Denies Speculation About Futures Manipulation

China’s futures industry regulator denied speculation that a foreign financial company contributed to a Nov. 12 stock market slump by manipulating trading in index futures.

“It would be very unlikely for global banks or other global institutions to manipulate the index futures market right now, as no foreign institutions have been officially allowed into the market yet,” said Song Anping, deputy director of the Department of Futures Supervision at the China Securities Regulatory Commission, in a telephone interview.

The benchmark Shanghai Composite Index tumbled 5.2 percent on Nov. 12, the biggest decline since Aug. 31, 2009. A “global bank” may have contributed to the drop by manipulating index futures, Shi Jianxun, a professor at Tongji University, wrote in a commentary published yesterday in the People’s Daily’s overseas edition. He didn’t identify the company.

“The gains would have been too small for global banks to take such risks given that it’s only a 30 billion yuan ($4.5 billion) market right now,” said Glen Lin, vice director of the research department at Shanghai Orient Securities Futures Co.

China started index futures trading in April in a push to ease stock-market volatility and give investors a way to protect themselves against equities swings. The Shanghai Composite almost doubled in 2007, then lost 65 percent the following year.

The country has yet to allow so-called Qualified Foreign Institutional Investors, or QFIIs, to trade index futures under a program that gives them access to China’s equity market. The CSRC circulated a draft of rules for QFII trading of index futures in May to solicit opinions from industry participants.

“The rumor is hard to prove, but the concerns behind this commentary might postpone the progress of allowing QFIIs to trade index futures,” said Cao Zhongzhong, chief analyst at Dahua Futures Co.

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