It has not yet announced the date from which it will allow trading to take place.
China’s decision was confirmed after the close of the Strategic and Economic Dialogue meeting in Beijing.
“China will permit qualified foreign-invested firms duly incorporated in China to carry out stock index futures business in accordance with relevant laws and regulations and will allow QFFI to invest in stock index futures products,” the two countries said in a joint statement.
Though the US has pushed for the regulatory changes in China, none of the 95 registered QFII firms headquartered in the US will be able to trade the index contact until the Commodity Futures Trading Commission gives clearance.
Under US law, foreign boards of trade that wish to permit their US members and other participants in the country to have direct access to their electronic trade matching system, not through an intermediary, must request no-action relief from the CFTC’s Division of Market Oversight.
The impact of the move will depend on the rules the country’s regulator imposes on the foreign institutions.
The China Securities Regulatory Commission recently issued draft guidelines for broadening the types of firms allowed to trade index derivatives. These said QFIIs could only use them for hedging. Clarification is needed on which ‘A’ share positions could be hedged using the futures.
It is also unclear unsure how many contracts QFIIs would be allowed to trade.
Dean Owen, China chief representative in Newedge’s Shanghai representative office, said he believed the impact on trading volumes of the QFII participation would be determined by the quota imposed on the foreign institutions.
“The existing total QFII quota is less than $20bn, so if the futures limit is a percentage of that then I wouldn’t expect it to have too much of an impact on trading volumes,” Owen said.