Morgan Stanley moves ahead with plan for wholly-owned futures company in China, as Beijing accelerates financial opening

CSRC acknowledges Morgan Stanley application to set up wholly-owned futures business in China
The likely second foreign wholly-owned futures firm after JPMorgan, signals China’s ongoing financial opening, with investment managers Fidelity and Neuberger Berman among firms granted greater access

Banking & finance

Iris Ouyang

Published: 8:30am, 7 Apr 2023

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Morgan Stanley’s ambition for establishing a wholly-owned futures company in China progressed with China’s securities watchdog accepting its application, as the world’s second largest economy accelerated the opening up of its financial markets to foreign capital.

The China Securities Regulatory Commission’s (CSRC) website showed the regulator had accepted Morgan Stanley’s application on Monday.

The move gives hope for the establishment of the second foreign wholly-owned futures company in China – after JPMorgan’s unit got the green light in 2020 – to tap the 534.93 trillion yuan (US$77.74 trillion) futures market.

JPMorgan received the approval in June 2020, soon after China scrapped caps on foreign ownership in the sector dominated by domestic players.

BEIJING, CHINA – 2014/12/24: The entrance to the China’s Securities Regulatory Commission (Photo via Getty Images)

Morgan Stanley has already been preparing the groundwork for this business.

In January 2022, three executives of Morgan Stanley Futures (China) passed the professional assessment for futures companies’ executives, according to an update by China Futures Association.

Morgan Stanley gets green light to take full control of mainland China unit

The annual trading volume of China’s futures market reached 534.93 trillion yuan last year, according to data from China Futures Association. In March this year alone, it was 49.9 trillion yuan.

Beijing has vowed to open up the industry and allow foreign investors to trade products in the futures market. On January 12, Zhengzhou Commodity Exchange for the first time allowed foreign investors to trade certain domestic agricultural futures including rapeseed oil and peanuts. That increased the number of categories open to foreign investors to 23 after iron ore became the first category for foreigners to trade in 2018. CSRC vice-chairman Fang Xinghai also pledged further opening up, according to state media China Internet Information Centre in a January 12 report.

China has sped up its financial opening, with Neuberger Berman becoming the second international investment house to establish a wholly-owned mutual fund company on the mainland. The US asset manager is now eyeing more fund launches following the success of its first retail product.

Fidelity has commenced the sales of its first mutual fund product in mainland China, as it becomes the third foreign asset manager to expand in China’s mutual-fund market after Neuberger Berman and BlackRock. American asset manager AllianceBernstein also won approvals for wholly-owned mutual-fund entities in February this year.

JPMorgan Chase, Manulife Financial and Morgan Stanley were given the go-ahead by the CSRC to buy out their local partners in January and February this year.

Morgan Stanley is set to take full control in its mainland Chinese mutual fund unit – increasing its stake in Morgan Stanley Huaxin Funds to 100 per cent from 49 per cent.

The commission also allowed Standard Chartered to set up a wholly-owned securities brokerage in January, which allows it to offer services such as underwriting and asset management on the mainland.