Rules could be relaxed if QFII index futures trading is successful

On May 6, the China Securities Regulatory Commission (CSRC) released new regulations that allow qualified foreign institutional investors (QFIIs) to trade stock index futures (SIFs) in China.

Although the Guidelines for the Participation in Stock Index Futures Trading by Qualified Foreign Institutional Investors (合格境外机构投资者参与股指期货交易指引) allows QFIIs to trade SIFs, there are two key restrictions: 1) they may trade for hedging purposes only and cannot sell overseas derivatives products based on the SIFs and 2) they must comply with applicable daily trading limits.

Shanghai-based Boss & Young partner Hubert Tse, who advises several QFIIs, said trading on the Chinese A-share market had become more volatile since the SIF launch in April 2010. “To limit the possible risk of increased A-share market volatility, the CSRC has proposed restricting the type and volume of SIFs that can be traded by QFIIs, and requires QFIIs, custodian banks and domestic futures companies to assume certain compliance and supervisory obligations,” he said.