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China to Ban Stock, Futures Trading on Unauthorized Exchanges

China will ban trading of securities and futures on unauthorized exchanges to regulate the market and prevent financial risks, the State Council said.

Some of the trading activities have led to price manipulation and fund embezzlement by the exchange managers, China’s cabinet said in a statement dated yesterday. Such problems may cause regional financial risks and endanger social stability, the statement said.

There are over 300 unregulated bourses across the country, the Financial Times reported today, citing analysts. Turnover on the three authorized commodity futures and a financial futures exchanges in China fell 4 percent to 113.4 trillion yuan ($18 trillion) in the first ten months from a year ago, according to the China Futures Association.

“Regulators are concerned because these exchanges do not pay much attention to risk control, and volatile trading could hurt the participants and have a spillover effect on other companies and related industries,” said Shen Zhaoming, a Shanghai-based analyst at brokerage Changjiang Futures Co. “Local governments all hope for bigger economic influence, and they think establishing such exchange platforms is an efficient way to achieve the goal.”

Apart from the stock and futures exchanges approved by the State Council, no other bourses are allowed to list new shares, offer centralized pricing or make markets, the statement said. Exchanges that trade gold, insurance or credit products must receive approvals from financial authorities under the State Council, it said.

Local governments should set up teams immediately to “clean up and consolidate” the exchanges in their regions and rectify illegal trading activities of stocks or futures, the statement said. The use of the name “exchange” in Chinese will be strictly regulated, it said.

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