December 27, 2012 / 4:00 AM / in 5 years

Shanghai Futures Exchange to open up to foreign players

SHANGHAI, Dec 27 (Reuters) - The Shanghai Futures Exchange (SHFE) will open up to foreign institutions and develop options and other derivative contracts under a plan to become a leading Asia-Pacific bourse over the next five years.

China’s only metals futures exchange will broaden its contract offerings beyond commodities and will continue actively developing crude oil futures, financial derivatives, index futures and metals futures options over the next five years, Chairman Yang Maijun said in a new five year development plan for 2013 to 2017.

“The exchange will move towards opening up to overseas players over the next five years and aims to become an important pricing centre for global commodity markets,” Yang said in a statement issued late on Wednesday.

Chinese authorities keep a tight grip on the country’s commodities exchanges to deter speculators from driving up food and resource prices.

While the SHFE has a booming domestic copper futures market which offers Chinese participants significant liquidity in trading the base metal, foreign access is limited. Foreign firms are only allowed to trade via brokers and only after setting up a locally registered non-financial unit, which is required to put up a large amount of registered capital.

The lack of integration between Chinese and overseas exchanges limits the influence of the world’s top commodities buying country in international commodities prices, which therefore often fail to accurately reflect underlying Chinese demand.

The exchange has said its planned crude oil futures contract would be China’s first to be open to foreign players but the proposal is still awaiting approval from regulators.

Yang also said the exchange would need to transform itself into a corporate entity to improve risk management, making the exchange’s members - mainly futures brokerages - into shareholders, Yang said. He did not say if the exchange plans to list on the stock market.

The SHFE said it has also launched a nonferrous metals index under a trial to provide a price reference for the industry and to expand investment opportunities in the metals sector.

The index, called the SHFE-IMCI, is compiled from futures prices of copper, aluminium, zinc and lead, which are aggregated on a weighted basis. (Reporting by Fayen Wong; Editing by Edmund Klamann)

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