China Resurrects Treasury Futures Trading After 18 Years

The China Securities Regulatory Commission (CSRC) said that the State Council has approved the reintroduction of trading in government bond futures after an 18-year hiatus. The aim is to provide a hedging tool for investors and to boost the fixed income market.

China originally began government bond futures trades in 1992 but ended it three years later in 1995 following a trading scandal that involved Guan Jinsheng, then president of Shanghai International Securities. Guan was accused of market manipulation and subsequently received a 17-year jail sentence for allegedly accepting bribes and misappropriating public funds between 1992 and 1994.

The lifting of the ban is in line with China’s continuing reforms of its financial markets and will help promote the liberalisation of interest rates, said the CSRC in a statement. It did not confirm a date for when  the futures, which are linked to five-year government bonds, will start to trade, but said that it expects to take around two months to complete the preparatory work, including clarifying the criteria for financial institutions that seek to take part in the trading and training for investors and market intermediaries.

The CSRC also said it has given approval for the futures to be traded on the China Financial Futures Exchange (CFFE), which has completed the design of the futures contracts and testing of the trading system.

The approval comes as the government attempts to have companies decrease their reliance on bank loans and spread their credit risk by selling debt. China is opening its US$3.7 trillion bond market to foreign investors through its Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) programmes.

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