China will resume trading of government bond futures for the first time in 18 years to provide investors with a hedging tool and help boost the fixed- income market.
Trading of the futures was approved by the State Council, China’s highest-level government body, the China Securities Regulatory Commission said today. The securities regulator has in turn approved the China Financial Futures Exchange to start the trading, according to two statements posted to the commission’s website. Preparation will take about two months, the CSRC said.
The approval comes amid government efforts to have companies decrease their reliance on bank loans and spread their credit risk by selling debt. China is opening its $3.7 trillion bond market to foreign investors through its Qualified Foreign Institutional Investor and Renminbi Qualified Foreign Institutional Investor programs.
The trading may start as early as September, the China Securities Journal reported on July 3.
Sales of government notes rose to 1.6 trillion yuan ($261 billion) last year, from 53 billion yuan in 1997, according to Chinabond, the nation’s biggest debt clearinghouse. Maturities range from 91 days to 50 years.
Haitong Futures Co., a subsidiary of China’s second-biggest listed brokerage, said in November the reintroduction of bond futures may help boost trading in the spot market by 20 percent to 30 percent.
China started trading government bond futures in 1992, and stopped it in 1995 amid a scandal involving Guan Jinsheng, then president of Shanghai International Securities Co., who was accused of market manipulation. Guan was consequently jailed for 17 years for accepting bribes and misappropriating public funds between 1992 and 1994.
Futures are a type of derivative used to hedge risk or for speculation.