China Is Said to Consider Easing Curbs on Index Futures

(Bloomberg) -- China is considering a relaxation of stock-index futures trading curbs that were introduced during the nation’s 2015 market crash, people familiar with the matter said.

Officials have drafted a proposal that would allow institutional investors with so-called non-hedging accounts to open new positions in as many as 100 contracts a day before they are deemed to be engaged in “abnormal trading,” said the people, who asked not to be named discussing private information. The current limit is 20 contracts.

The proposal is subject to approval by the China Securities Regulatory Commission, the people said. The CSRC declined to comment, and a spokesperson for the China Financial Futures Exchange said it hasn’t received any orders regarding position limits from the CSRC.

While China was once home to the world’s most active index futures market, volume dried up in 2015 after regulators blamed the derivatives for exacerbating equity losses and cut position limits by 98 percent. Daily trading in the contracts is still about 99 percent below its peak, despite a small relaxation of curbs in February 2017.

Looser restrictions would be welcomed by hedge funds and other professional money managers who depend on futures to implement their investment strategies in a market where shorting stocks is difficult.

The proposal comes amid a flurry of recent statements from top Chinese officials reaffirming the country’s commitment to financial reform. People’s Bank of China Governor Yi Gang said on Wednesday that regulators will quadruple the daily quota for the Shanghai-Hong Kong exchange link and implement further financial-sector opening by June 30.

The Shanghai Composite Index, which has advanced 21 percent from its post-crash low in 2016, climbed 0.6 percent on Wednesday for its third day of gains.

To contact Bloomberg News staff for this story: Steven Yang in Beijing at kyang74@bloomberg.net.

To contact the editors responsible for this story: Jessica Zhou at jzhou75@bloomberg.net, Michael Patterson, Sam Mamudi

©2018 Bloomberg L.P.

With assistance from Steven Yang