China readies Forex mandates for foreigners to trade commodity futures

We learned yesterday first reported by Reuters that foreign investors will be allowed to transfer either foreign currency or renminbi funds into China to trade the country’s commodity futures markets, foreign exchange regulator State Administration of Foreign Exchange (SAFE) said on Friday.

The outside opening of China’s commodity futures market is another major reform supporting Beijing’s efforts to increase its sway on global commodity pricing. China gobbles up a ton of resources to support it’s consistently growing economy. Furthermore, it’s citizens are major buyers of Gold.

The China Securities Regulatory Commission announced in June that Beijing would allow foreign investors to trade in some commodities futures for the first time, and the Forex regulator’s announcement on Friday made related foreign exchange regulations ready for foreigners to trade futures.

At present, foreign companies have very limited access to China’s commodities markets. Companies are only allowed to trade via brokers after setting up a locally registered non-financial unit, which requires a hefty amount of registered capital.

Now, starting on August 1st, foreign commodity futures trading or brokerage firms can open special accounts in designated China-based banks, and funds transferred for such trading must not be used for other purposes, according to rules issued by the State Administration of Foreign Exchange (SAFE) on its website on Friday.

Among major provisions, commodity futures exchanges, its members and China-based banks related to foreigners’ trading must report to the SAFE the deposit, trading, settlement and other data required by China’s regulations of international balance of payments.

The China Securities Regulatory Commission has said the Shanghai Futures Exchange’s crude oil futures would be the first contract that qualified foreign investors would be able to trade, adding that they could participate via approved overseas or local brokerages. They may also apply for direct trading licences with the exchange.

The securities and futures regulator, however, has not given details on other domestic futures contracts that would be open to overseas players. However, it should only be a matter of time before China’s main futures exchanges are connected globally as these reforms continue to evolve over the next few years.

China has yet to launch crude oil futures, but the central bank announced last week regulations governing how the futures will be settled, a sign that the long-awaited contract has edged closer to a debut.

To view the release from SAFE, click here (Chinese).

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