CSRC seen mulling easier rules on stock futures trading

China’s securities regulator is reportedly considering relaxing the restrictions on the trading of stock index futures. Any such move would underscore its intention to gradually restore the market function that has almost come to a halt since the market rout in 2015.

Relaxation measures will likely include reducing the minimum margin requirement from 40 percent to 20 percent of the contract value and increasing the maximum daily trading volume from 10 contracts to 20 per investor, Chinese media reported, citing people familiar with the matter.

Chinese online media outlet thepaper.cn reported that the regulator is likely to announce the decision within this month. The China Securities Regulatory Commission did not respond to media inquiries on this matter.

Short selling through index futures trading has been blamed for the market crash in the summer of 2015 that wiped out one-third of the A-share market value within a month.

The trading volume of index futures dropped dramatically by more than 90 percent in 2016 from the previous year, after the regulator implemented trading curbs to stem the market rout.

The harsh restrictions have almost dried up liquidity in the stock futures market, sparking investors’ demand for the restoration of trading, which served as a necessary pricing and risk-hedging tool.

“The A-share market has been consolidating, with relatively stable movements. The basic condition for loosening the trading curbs on index futures is in place,” said Xun Yugen, chief strategist at Haitong Securities Co Ltd in a research note.

Relaxing the trading curbs will strengthen investors’ ability to hedge risks and it will likely attract more capital into the stock market, Xun added.

A growing number of scholars and market analysts have also been calling for restoration of trading because they believe that the trading of stock index futures was not the cause of the stock market crash in 2015.

It was reported that China’s top securities regulator has set up a special team to review and assess the role of stock index futures trading during the stock market rout in 2015.

But, an index futures investor in Beijing told China Daily on condition of anonymity that the relaxation measures are more of a symbolic move, which is far from enough to substantially improve the market liquidity or to help investors hedge risks effectively.

The basic condition for loosening the trading curbs on index futures is in place.” Xun Yugen, chief strategist at Haitong Securities Co Ltd