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China relaxes restrictions on stock index futures trading

China’s financial futures exchange said on Sunday it was further relaxing index futures trading rules, reducing margin requirements, cutting trading fees and allowing more trading activities, as investors continue to look for better means of managing risk.

In a statement, the China Financial Futures Exchange said it was lowering the margin ratio for CSI300 and SSE50 index futures to 10 per cent from 15 per cent.

The ratio for small cap CSI500 index futures would be lowered to 15 percent from 30 percent.

The exchange said it was making the moves after having “comprehensively evaluated the market risks and actively improving the supervision system”.

“The adjustments are positive measures to optimize stock futures index trading and promote the effective functioning of the market,” it said.

Intraday activity exceeding 50 lots on a single index futures contract would be considered excessive, according to the new guidelines, as opposed to 20 in the past.

China tightened index futures trading rules during the 2015 crash but has been gradually relaxing rules since early last year.

The exchange said it would track the implementation of the measures, strengthen its market risk monitoring and supervision of trading, and ensure that the stock index futures market is “safe and stable”.

“A more open economy requires more effective price discovery and risk management,” said Fang Xinghai, vice chair of the China Securities Regulatory Commission (CSRC). This will necessitate a wider range of tools for investors to hedge against risk, he added.

The derivatives use stock indices as the underlying asset, allowing investors to bet on broad price movements in the market to offset other holdings.

Regulators cracked down on index future trading in the wake of the 2015 market crash, blaming them for adding to downward pressure on the market. Restrictions were eased as markets stabilised in 2017, but many market participants have said that progress has been slow and the hedging tools remain largely inaccessible.

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