Beijing looks at launching bond futures again

PUBLISHED : Wednesday, 11 January, 2012, 12:00am
UPDATED : Wednesday, 11 January, 2012, 12:00am


Beijing is considering relaunching bond futures after a 17-year hiatus as newly appointed chief securities regulator Guo Shuqing pledges to deepen and accelerate reforms in the capital market.

Addressing regulatory officials following the Financial Work Conference held last week, Guo, who was named chairman of the China Securities Regulatory Commission (CSRC) last October, said Beijing was actively studying new trading mechanisms for bond futures and other equity-based derivatives.

'It is a must to liberalise our minds so as to make proper arrangements for a better allocation of resources on the capital market,' he said in a statement published by the CSRC. 'Innovative capabilities should be given free play so as to reasonably direct fund inflow to the sectors hungry for financing.'

His remarks were in line with analysts' expectations of drastic moves to liberalise the fast-growing capital market after Guo, a former China Construction Bank chairman, took the helm of the CSRC.

'He is a bold reformer and is expected to do what his predecessor was afraid of doing,' said Yongan Futures Brokerage analyst Huang Lei. 'But it's difficult to speculate on the timing of the reforms because, after all, he has to co-ordinate with policymakers at other regulatory bodies.'

Beijing launched bond futures in 1992. Trading on the Shanghai exchange was plagued by rampant speculation as investors chased short-term gains through wild price swings, and trading was halted in 1995 due to the '327 incident'.

On February 23, 1995, Shanghai Wanguo Securities massively exceeded a ceiling on its futures position and dragged down prices of a bond futures contract - whose code was 327 - triggering a sell-off. The government eventually had to spend more than 1 billion yuan to cover Wanguo's losses. Beijing has been wary of relaunching bond futures following the scandal.

The CSRC established the China Financial Futures Exchange in Shanghai in September 2006 as it prepared to launch stock-index futures, the mainland's first equity-based derivative. But it was not until April 2010 that the index futures started trading on the bourse.

To minimise risks, investors applying to open trading accounts at the exchange were required to take a written test on financial derivatives.

Guo said the regulator would launch other commodity futures contracts, including for crude oil and silver, but stressed that reforms would be cautious.

Guo's appointment in October followed two years of dismal performance by the mainland stock market, and investors hope he will be able to breathe life into it.

In the past three months, the new chairman has been advocating more cash dividends by listed firms to shore up investor confidence.

Nicole Yuen, head of China equities for UBS, said the mainland market would see great changes as regulators accelerated reforms.