Brokers to test clients on futures products

PUBLISHED : Tuesday, 22 November, 2011, 12:00am
UPDATED : Tuesday, 22 November, 2011, 12:00am


China's securities regulator will require futures brokers to test their clients' knowledge of the high-risk products before they open trading accounts, in a move seen as a way of improving the overseeing of the commodity futures market.

The China Securities Regulatory Commission's (CSRC) rule is the first since new chairman Guo Shuqing took office at the end of October.

Under the rule, brokerages are required not only to test clients' knowledge and expertise on commodity futures but also to fully inform them of the high risks.

The new rule will become effective on May 1 although it does not specify how clients will be tested.

On the mainland, thousands of retail investors regard futures trading as a way to get rich overnight.

The wild price swings on the global commodities markets have made many unseasoned investors believe that it is a good time to punt on futures contracts.

'It is a clear message by chairman Guo that risks in the volatile futures market were noticed by him,' said Yongan Futures Brokerage analyst Huang Lei. 'It is expected that he will take more dramatic steps in regulating the market.'

Guo, the former China Construction Bank chairman, replaced Shang Fulin to head the CSRC. Stock investors and futures traders say they hope he will further liberalise the markets in keeping with the mainland's growing economic importance.

Since early November, the CSRC has tightened initial public offering approvals to protect investors.

An IPO spree was blamed by investors for a 14 per cent drop in the benchmark indicator this year.

The new testing rule for futures brokerages also stipulates that they must closely monitor investor accounts and assess risks in their trading behaviour every day, but the CSRC did not elaborate.

When Beijing launched stock index futures on the Shanghai-based China Financial Futures Exchange in April 2010, the CSRC required investors to take a written test covering basic knowledge of the equity-based derivative before opening accounts.