Outstanding contracts in Hang Seng Index futures are at their lowest level in nearly two years because of curtailed short-selling and proprietary-trading activities, according to dealers. Yesterday, open interest for all futures contracts stood at 40,754, compared with an average open interest of 75,681 to October and the lowest since January last year. Volumes have also fallen. 'It shows how quiet this market is,' a derivatives trader said. Futures positions climbed to record levels this year as international hedge funds accumulated large short positions. Open interest peaked at 150,935 in August as speculators battled the Hong Kong Monetary Authority. Figures were swollen by proprietary traders, who took advantage of gaping discounts to the cash market in the second and third quarters. At times, arbitrage traders were estimated to hold between a quarter and a half of all outstanding contracts. Dealers, however, said these activities had slowed sharply. Many hedge funds were out of the market after sustaining global trading losses in the wake of the Russian rouble's devaluation in mid-August and the introduction of anti-speculation rules in Hong Kong in September, they said. In addition, proprietary desks were trading under tighter limits and some desks closed as investment banks reined in trading risk. 'Everyone has curtailed their positions and are a lot more risk adverse,' a derivatives trader said. 'By now, if you haven't made money, you're not going to try, and if have, you're not going to lose it now.' In addition, a narrower average price gap between the futures and cash, and tougher short selling regulations have restrained trading opportunities.