UPDATE 1-UBS Securities to buy controlling stake in China futures broker

Mon Feb 17, 2014 4:03am EST

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(Adds details on development of China futures market)

HONG KONG Feb 17 (Reuters) - UBS AG said its Chinese securities unit has agreed to buy a majority stake in a Chinese futures broker, hoping to profit from an increase in trading of the financial products as China seeks to encourage their use.

UBS Securities Co Ltd will inject 90 million yuan ($14.8 million) into Shanghai Pumin Futures Brokerage Co Ltd, giving the Swiss bank a 95.42 percent stake in Pumin Futures, the bank said in a statement on Monday.

Chinese regulators have implemented a series of administrative rules for futures trading, but the lack of a legal foundation has hindered the development of futures, China's National People's Congress said in its December announcement.

China launched its Hushen 300 index, the first stock index futures to begin trading on the mainland, in April 2010 after a three-year trial in which brokers could practice trading the contracts.

That development added the first futures contract whose underlying product was financial, to the existing pool of commodities-based futures already traded in China.

Those products are traded on the Zhengzhou Commodity Exchange, Dalian Commodity Exchange and Shanghai Futures Exchange. A fourth exchange, the Shanghai Financial Futures Exchange, was established in 2006.

Foreign investment in Chinese futures brokers has been limited in the past by regulatory barriers. Galaxy Futures Co Ltd, CITIC Newedge Futures Co Ltd and J.P. Morgan Futures Co Ltd were the only Chinese futures firms with foreign investors, Caixin magazine reported in May 2012.

Trading volume of financial futures, including the Hushen index and newly introduced treasury futures, reached 141 trillion yuan in 2013, UBS Securities said in its statement.

($1 = 6.0668 Chinese yuan)

(Reporting by Denny Thomas and Lawrence White, additional reporting by Gabriel Wildau; Editing by Matt Driskill and Jeremy Laurence)

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