UBS said it is lobbying Beijing for permission to trade China’s first financial derivatives contracts — stock index futures—widely expected to be launched later this year.
The Swiss bank is in discussions with the China Securities Regulatory Commission (CSRC), the country’s top stock market watchdog, on the possibility of becoming one of the first foreign investors to tap the market, a senior UBS executive said.
“We hope China can launch its financial derivatives trade and products as soon as possible and UBS definitely wants to participate in the stock index futures under the Qualified Foreign Institutional Investor (QFII) scheme this year,” said Nicole Yuen, a managing director for UBS in Asia.
“Stock index futures are something very new in China but UBS can bring international expertise to the new market if we are allowed to do business,” said Yuen, who is also one of several foreign advisers for the CSRC.
China has missed its goal of launching stock index futures trading by the end of last year or early 2007, partly due to Beijing’s concern that new products would become a target of excessive speculation.
Analysts have also warned that the launch of index futures could trigger a fall in the stock market, in part by providing an opportunity for short-selling.
Industry sources recently said stock index futures were likely to start trading by mid-2007, but it is still unclear whether Beijing will allow foreign investors to participate in trading in the preliminary stages. “We’ve told the Chinese regulators that foreign participation in stock index futures can increase trading volumes, which is a very important factor when a new market begins,” said Yuen. “I believe neither regulators nor investors want to see an inactive market,” she added.
Yuen said conditions were ripe for launching stock index futures in China despite increased volatility in China’s stock market this year.
Last September, China formally launched its first financial derivatives exchange in Shanghai. Officials have said the first contract would be based on an index that will track 300 major stocks listed in Shanghai and Shenzhen .
Yuen also said the Zurich-based bank expected Beijing to approve additional investment quotas for the firm in 2007 for China’s stock and bond markets under the QFII scheme.
UBS, which currently has an $800 million (Rs3520crore) QFII quota, applied for an increase in early 2005. It has not yet received approval, Yuen said.
Yuen told Reuters last year that UBS hoped to increase its quota to $1.3 billion (Rs5,720 crore).