'Death' of China futures trading amid tight limits and probe into short selling

Once the world's most heavily traded futures market, the China Financial Futures Exchange just ended its worst month in years as it awaits results from investigations launched by the securities regulator.

Monthly volume on the exchange in October fell to a five-year-low of 158.5 million yuan, from a record high of 8.8 billion yuan just four months earlier, or what equated to "the death of a market", according to insiders.

Trading volume in the burgeoning market took a precipitous dive starting in August after the China Securities Regulatory Commission slapped tight margin requirements and position limits on futures trading.

Experts are now projecting a slow recovery and a long wait for an end to the tight limits put in place.

"Our view is that they will slowly restore the market by lifting one by one some of the limitations," Zheng Tao, an analyst at GF Securities' derivative trading desk in Guangzhou, said of the regulator, which is investigating trading houses for "malicious" short selling.

An easing of restrictions could come as soon as the end of the year, Zheng added, as some of the early conclusions to the investigations are reached.

China's securities market began a more than 40 per cent plummet in June. That led investors to hedge their investments with short positions, accounting for the great volume on the futures exchange in July.