Mainland government bond futures started trading in Shanghai yesterday, marking the end of an 18-year hiatus, as the securities regulator said it would be firm in controlling risks in the nation's fledgling financial markets.
Bond futures could help the mainland liberalise its interest-rate mechanism and provide a new tool for institutions to hedge against interest-rate volatility. Banks and insurers, which hold 70 per cent of the mainland's government bonds, have been barred from playing the new derivatives listed on the China Financial Futures Exchange.
Only brokerages, mutual funds and cash-rich individuals are allowed to trade bond futures. A total 36,500 lots changed hands yesterday, falling short of analysts' expectations.
During earlier simulated trading, daily turnover of bond futures stood at about 47,000 lots. One lot is one million yuan.
"It was a smooth start," said Jiang Mingde, economist at Sinolink Futures. "This was what the regulators expected to see."
Beijing banned treasury bond futures in 1995, after a trading scandal caused the collapse of Wanguo Securities.
Xiao Gang, chairman of the China Securities Regulatory Commission (CSRC), describing financial derivatives as a "double-edged sword", said risk-control measures would always be highlighted in any new step taken to liberalise the markets.
"The bottom line is that we have to ensure that systemic risks are controlled," he said in a speech at a ceremony marking the relaunch. "Regulations must be strengthened to weed out market manipulation and inside trading."
It was Xiao's first public appearance since he took up leadership of the CSRC in March. His remarks follow a spectacular trading error in Shanghai last month that saw Everbright Securities mistakenly place a buy order for shares worth more than 20 billion yuan (HK$25 billion). That mistake drove the stock market's key index up nearly 6 per cent within minutes.
Xiao, a former Bank of China chairman, has been tight-lipped since he became the chief securities regulator. Sources close to the CSRC said he was taking a cautious stance on the securities and futures markets in order to maintain stability.
Meanwhile, Vice-Finance Minister Zhu Guangyao told a briefing in St Petersburg, Russia, on Thursday that an audit of local-government debt would be completed this month.