Qualified foreign institutional investors (QFII) will be allowed to participate in the expanded CSI 300 index futures trading system, the China Business News Thursday quoted a draft regulation, which solicited securities insiders' opinions, as saying.
The draft was handed out by securities regulators, and provoked discussion regarding the participation of foreign firms. Currently, no index futures trading is available in the Chinese mainland markets, although at present a CSI 300 index futures trading system offers virtual investments for domestic institutions.
A source close to the matter said that the draft imposed severe restrictions on QFII's investment in the index futures. According to the rules, QFII funds can invest at most 10 percent of their investment quota in the financial derivatives as a way to hedge off market risks. Considering QFII funds at present have a total quota of US$10 billion, a maximum of US$1 billion would flow into the new market.
"The measure would provide QFII funds with another channel for investment in financial derivatives of domestic stock indices. So far, quite a few QFII funds have investments in the FTSE/Xinhua China A 50 Index in Singapore," said Gao Zijian, a securities analyst with Orient Securities.
"After the launch of the CSI 300 index futures, QFII fund managers will be able to analyze the difference in futures-spot prices between the two markets and make more accurate judgments regarding the A-share market," Gao said.
Wu Guijun, from the department of financial futures of Essence Securities, said: "The participation of QFII will not cause substantial impacts on the A-share market, but excessive fluctuation may occur near the maturity day, when index futures contracts are to be settled. Therefore, investment in heavy stocks that have greater impact on the index will create extra opportunities as well as risks."
