September 3, 2013 / 2:01 AM / 6 years ago

China details first contracts for restart of govt bond futures trade

SHANGHAI, Sept 3 (Reuters) - The China Financial Futures Exchange (CFFEX) said it will relaunch government bond futures trading on Friday with three five-year contracts, after an 18-year hiatus.

The first batch will be a December 2013 contract, bearing the code TF1312, a March 2014 contract coded TF1403, and a June 2014 contract coded TF1406, the exchange said on its website, late on Monday.

Margin requirements will be set higher than the legal minimum at the beginning.

“To tightly control risk at the start of listing (of the futures), margin requirements for these contracts will temporarily be set at 3 percent,” it said in the statement.

Exchange regulations published last Friday stated that minimum margin requirements for government bond futures contrasts will be 2 percent, rising to 3 percent on the 10th of the month ahead of the delivery month and 5 percent on the 20th.

The last trading day will be the second Friday of the delivery month, with delivery on the third following trading day.

The exchange said it will announce base prices for the first contracts one day ahead of listing, and daily limits for the first day of trading will be 4 percent in either direction.

That may reflect an intention to let the market discover its own prices, traders said, as ordinarily the daily limit for the government bond futures will be 2 percent up or down, according to published regulations.

The China Securities Regulatory Commission announced last Friday that the country will relaunch the government bond futures market after an 18-year suspension as authorities move to funnel investment into the struggling private sector and prepare to liberalise bank deposit rates.

The original market, located in the Shanghai Stock Exchange, was shut in 1995 after a trading scandal led to the collapse of the country’s largest brokerage and its chief executive being jailed after making bad short bets on three-year government bonds without sufficient margin deposits on hand. (Reporting by Lu Jianxin and Pete Sweeney; Editing by Eric Meijer)

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