China Makes Index Future Speculation More Costly as Stocks Dip

China is making it more expensive to speculate on stock-index futures as the government tries to revive confidence in the stock market, which just suffered its steepest three-week decline since 1992.

The China Financial Futures Exchange, where three stock-index futures contracts are listed, plans to adopt a system of differentiated charges based on trading volumes, the bourse said Friday in a statement on its official microblog. The measures will take effect before Aug. 1.

The exchange will also inspect the top 50 traders and position holders to prevent “deliberate shorting,” according to the statement.

With the Shanghai gauge tumbling more than twice as fast as any other index worldwide, regulators pledged to investigate potential market manipulation and have unveiled measures to comfort the nation’s 90 million individual investors. In addition to the rules on futures trading, a local newspaper reported Friday that a state agency bought exchange-traded funds and the securities watchdog said fewer funds would be raised this month via initial public offerings.

Surging volumes

Trading volumes of stock-index futures have surged since June 15. Quantitative trading has accounted for more than 50 percent of the total volume, and short-term speculation has increased, the CFFEX said in the statement.

The Shanghai Composite Index fell 5.8 percent Friday to 3,686.92, extending losses to 29 percent since its June 12 peak. Chinese shares have erased more than $2.8 trillion of value in three weeks, an abrupt end to the longest bull market in the nation’s history.

Just 39 of the 1,106 stocks in the Shanghai Composite posted gains on Friday, paced by PetroChina Co., amid speculation of buying by state-backed funds.

Central Huijin

The Chinese government is taking additional steps to steady the market, as expected. Central Huijin Investment Ltd., a unit of China’s sovereign wealth fund, has been purchasing exchange-traded funds since June 29, National Business Daily reported today, citing an unidentified person from the fund. The official Shanghai Securities News later confirmed that Huijin has “entered the market and conducted operations.”

Less money will be raised in initial public offerings this month compared with June, Zhang Xiaojun, spokesman of the China Securities Regulatory Commission, said in a briefing today. The watchdog planned to arrange 10 IPOs in early July, Zhang said.

He added that rules governing quotas for foreign investors will be revised to attract overseas funds, and said the regulator supports long-term investment in China’s capital markets.