Wasting no time with New Year’s eve celebrations, the Chinese securities market watchdog, the China Securities Regulatory Commission (CSRC), issued draft guidelines preparing to open the local futures market for access to foreign investors.
With volatility rampant on the local commodity futures markets, the regulator is seeking foreign investors to deliver additional liquidity to the market and secure a more stable environment. The first product which will be provided to foreign investors are crude oil futures, with the prospects for other energy markets on the table.
While foreign investors have already gained access to local stock indices futures, the volatile commodity and bond markets have a history of being very speculative due to poor liquidity conditions.
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Back in October, the Shanghai International Energy Exchange (INE) signed a strategic cooperation agreement with Singaporean bank, DBS, to facilitate the incoming internationalization of the energy futures market.
Later, the President and CEO of INE, Chu Juehai, also met with the chairman of the Dubai Mercantile Exchange (DME), and both entities signed a Memorandum of Understanding (MoU) in Dubai.
The move is expected to bring the Chinese energy market more in line with fundamentals, amid concerns by authorities that there is an issue with speculative entities. With added liquidity, price discovery will improve, as more market players always make it harder for relatively small entities to engage in price manipulation.