SHANGHAI (Reuters) - China aims to launch crude oil futures within the year and allow them to be traded by foreign investors as the country speeds the opening of its commodities futures market to overseas players, the chairwoman of the Shanghai Futures Exchange (SHFE) said on Monday.
Global institutions are eager to access China’s exchanges, which accounted for more than half the volume of commodity derivatives traded worldwide in 2010, according to data from the World Federation of Exchanges.
Once the crude oil contract is launched, the Shanghai Futures Exchange will gradually allow foreign investors to trade on other contracts, with non-ferrous metals products next in line to be freed up, followed by precious metals.
“The launch of crude oil futures is not merely about the Shanghai Futures Exchange having a new contract, but it symbolizes the gradual opening up of China’s commodities futures to foreign investors,” Chairman Wang Lihua said at the Shanghai Derivatives Market Forum.
“We hope to attract foreign investors, producers, traders, and consumers, and launch the contract within the year. We hope the contract will in time become one of the crude oil pricing benchmarks in the Asia-Pacific time zone.”
China’s commodities futures only offer a small window to foreign participation. Besides the precious metals contracts, financial institutions are barred from trading on commodities contracts and trading companies need to go through brokerages, which cannot take positions.
Limitations on yuan convertibility also hamper foreign participation in China’s commodity futures market.
The sour crude oil contract could be priced in either the yuan or the U.S. dollar, the SHFE said. The bourse was also actively working with China’s currency regulator, the State Administration of Foreign Exchange, on getting quotas for its crude oil investors, which would let participants convert the currency freely within set limits.
Wang did not give details on whether foreign players would be granted membership of the bourse or if they needed to trade through domestic futures brokerages.
Wang said the bourse had already developed an international platform and completed a draft contract proposal, which includes an oil benchmark, details on bonded storage delivery, rules on offshore trading and amendments to current regulations.
“The move to roll out an oil futures contract could help domestic companies cope with fluctuating oil prices and increase China’s influence over global pricing,” she said.
Following the success of its rebar contract, the SHFE said it was also looking to roll out more futures for the steel sector, including hot-rolled coil, steel plates and iron ore.
China, which has 26 commodity futures and one stock index futures contract, is also studying the launch of government bond futures, commodity price index futures, options and other financial instruments to help companies hedge risks, Tu Guangshao, vice mayor of Shanghai city, said at the conference.
Reporting by Fayen Wong; Editing by Clarence Fernandez