The regulator's move to allow freer trading of the devices is hailed as a key reform, writes Bei Hu
For a government terrified of risks, derivatives offer a whole new level of fear. Beijing has long been wary of these notoriously complicated financial instruments that can turn a loss into a rout, and a rout into a panic.
However, new rules from the China Banking Regulatory Commission (CBRC) signal that the Chinese government is finally prepared to confront its fears. The measures are considered the mainland's most significant derivative regulations to date, and bring badly needed clarity to Chinese companies' over-the-counter (OTC) trading activities.
Foreign currency transactions stand to be the biggest immediate beneficiaries, with domestic derivatives largely limited to exchange-traded commodity futures and yuan forward contracts offered by the big four state banks for the foreseeable future.
A surge of mainland investor interest in yield-enhancing instruments is expected, with the new regulations removing the requirement that derivatives can only be traded for hedging purposes.
'For financial derivatives, this is perhaps the most significant piece of regulation that we have seen from China,' said Chin-Chong Liew, a Hong Kong-based partner of international law firm Allen & Overy.