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China amends stock index futures rules

(Reuters)
Updated: 2007-05-09 09:11

The China Financial Futures Exchange has amended its draft trading rules for the country's first stock index futures, which are expected to be launched this year, to reduce potential risks.

Analysts said the amendments, published on Tuesday, reflected concerns about a possible overheating of China's stock market, with the Shanghai benchmark index more than tripling in value since the start of last year. The index climbed nearly 3 percent on Tuesday.

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The exchange has not given a time frame for the start of index futures trading, but industry sources have said it may be later than the first-half launch indicated by regulators, partly because the exchange was still working on its trading system.

The exchange, which will trade futures based on an existing index of the 300 largest firms by market capitalisation on the Shanghai and Shenzhen stock exchanges, raised its minimum margin requirement to 10 percent from 8 percent in draft rules published in the China Securities Journal on Tuesday.

The draft, which supersedes a proposed set of rules released late last year, also lowered the cap on investors' holdings to 600 lots from 2,000 lots.

"The adjustments mean the exchange wants to raise the threshold to avoid risks, as the Chinese stock market may recently have become overheated," said analyst Cai Luoyi at China International Futures.

"It can lower the barrier again to fit any new situation. Exchanges have the flexibility to change the trading rules," he said.

China is eager to develop its capital markets by launching domestic stock index futures, but investors are concerned that the start of futures trading could undermine the recent Chinese bull market by allowing short-selling of stock futures.

"The exchange is gradually preparing the launch of the new futures," said Hui Mei, a spokeswoman for the exchange, although she declined to comment on the time frame for the kick-off of trading.



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