Financial regulators in China are hopping mad at the launch in Singapore this week of a futures contract based on an index of mainland-listed A shares. Instead of getting angry, they would do better to learn through co-operation with the international market. As it was, Tuesday's launch of trading in China A50 Index Futures was overshadowed by news that the Shanghai and Shenzhen stock exchanges had filed a lawsuit in a Shanghai court alleging that index compiler FTSE/Xinhua had violated the mainland exchanges' intellectual property rights by use of their data without permission. In the contract's debut session on SGX, the Singapore stock and derivatives exchange, just 212 lots were traded, worth a notional US$11 million. Despite its tiny turnover, the Chinese authorities are doubly piqued at the launch of the Singapore contract. Firstly, they are deeply uncomfortable with the idea that derivatives on Chinese financial instruments should be traded in offshore markets where Beijing exercises no control. Secondly, they are incensed that the Singapore exchange got its contract up and running with a minimum of fuss, easily pre-empting the planned launch of Shanghai's own A-shares index future which appears to be stuck firmly on the drawing board. The Singapore exchange, however, is not bothered either by the contract's low volumes or by the hostility from China. After all, it has been here before. In 1997, Simex, as it was then called, launched Taiwan stock index futures in the teeth of fierce opposition from Taipei. Trading made a similarly tentative start then, with volumes of just a few hundred lots a day, after the Taiwan authorities prohibited onshore investors from dealing in the contract. Activity soon picked up, however. Within months the future was turning over as many as 10,000 lots a day, with about a third of the volume from Taiwan despite the ban. SGX is now hoping to repeat that success with its A-share index contract. If the level of international interest is anything to go by, it may well happen. Portfolio investors around the world are eager to get exposure to China's A-share market. But with the exception of a few who can get access through the qualified foreign institutional investor scheme, most remain shut out. An offshore index future offers them a cheap and easy alternative. In response to the Singapore launch, the Shanghai Financial Derivatives Exchange, where the mainland contract is going to be traded, is believed to be planning to hold a ceremonial opening today. However, futures brokers say that the onshore market will not be ready to begin actual dealing in index futures before the end of the year. Even if the Shanghai exchange were to open to foreign investors when it gets going, it would be unlikely to attract much interest. With just 50 constituents, the index traded in Singapore covers all the big A-share companies foreigners are familiar with, weighted to reflect their free float. In contrast, the index planned for Shanghai is capitalisation-weighted and comprises 300 shares, many of which are unlikely ever to make it on to international investors' radar screens. Moreover, the SGX contract is traded by familiar brokers in a regulatory environment that international investors are comfortable with. Mainland regulations for derivatives trading are untried, the Shanghai exchange's procedures for execution, clearing and settlement untested, and the quality of its futures brokers at best dubious. Instead of griping, Shanghai's regulators and exchange bosses would have done better to seek co-operation with established international players such as FTSE and SGX, looking to benefit from their superior contract design, technology and trading know-how. That could have generated extra liquidity for each by creating lucrative arbitrage opportunities between fungible onshore and offshore contracts, to the advantage of both markets.