Published On: Sun, Feb 26th, 2012

Shanghai on Track to Launch Bond Futures Trading: Official

Fang Xinghai, Director of the Shanghai Financial Services Office

Fang Xinghai, Director of the Shanghai Financial Services Office

Shanghai will be rolling out a number of aggressive initiatives to grow its capital markets this year, including introducing bond futures trading, a top Chinese financial services official told CNBC.

According to Fang Xinghai, Director of the Shanghai Financial Services Office, the city recently launched a bonds futures simulation program, which attracted a lot of interest. Shanghai’s bonds market is ranked fifth globally in terms of market size globally as at the end of 2010.

“The bond market was very active last year and I expect it to continue to be very active this year. The Shanghai Financial Futures Exchange recently launched what we call bond futures simulation trading — and it’s already quite active — so there’s a chance that bond futures trading could be launched in the near future,” he said

China first introduced government bond futures trading in 1992, which was subsequently banned three years later after the scheme attracted speculation, insider trading and other forms of market manipulation.

Fang believes the time is right to re-introduce the financial derivatives tool as China needs to “deepen” its financial markets, which he admits far lag their overseas counterparts.

“The Chinese financial markets are still at a very early stage in terms of product introduction. There are a lot of very mature products in overseas markets that have not been introduced in China, so we’re a little bit behind in that sense,” said Fang. “So you can expect a lot more new products to be introduced in the Shanghai market in the coming years.”

Shanghai has been aggressively pushing to become the global financial center by 2020. Last year, the city launched the Qualified Foreign Limited Partners, or QFLP, to attract investments into its private equity funds. Fang says the program has proven to be “very successful”, with companies like Blackstone, Carlyle, TPG, as well as a number of Silicon Valley firms, setting up operations. Other initiatives in the pipeline include attracting hedge fund companies to set up shop in the city.

Shanghai is also earmarked to become the global center for yuan trading over the next three years, or a market handling non-forex financial trades worth of 1,000 trillion yuan ($158 trillion) annually, up from less than 400 trillion yuan in 2010.

“We’re already the largest yuan trading center in China. But as the market deepens and as more products come to the market, our market size in Shanghai will certainly become even bigger, so we’re confident that we’ll become the yuan trading center by 2015,” Fang said.

Discussing the country’s slow pace in opening up its financial sector to foreign institutions, Fang expressed his disappointment.

“It’s pathetic. I think the financial market hasn’t really opened up,” he said. “A little bit more competition in the Chinese financial market can only be good for consumers and businesses. They may present certain pressures to the Chinese financial companies but I think that’s entirely needed. How you sell consumers and companies is the ultimate measure of the financial system.”

Source: CNBC

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