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China market turmoil could delay Hong Kong futures plan: sources

Friday, August 7, 2015 - 20:21
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Plans by the Hong Kong stock exchange to begin trading China's most popular index future could be delayed due to growing opposition from Chinese officials unnerved by a recent sell-off in mainland share markets, sources said.

[HONG KONG] Plans by the Hong Kong stock exchange to begin trading China's most popular index future could be delayed due to growing opposition from Chinese officials unnerved by a recent sell-off in mainland share markets, sources said.

The Hong Kong Exchanges & Clearing (HKEx) has been in talks with Chinese authorities and brokers over launching the CSI300 futures contract in Hong Kong, a move that would further open up the mainland equity market to foreign investors.

HKEx had hoped to be able to announce the contract launch this summer, but ran into difficulties because of growing opposition from within the China Financial Futures Exchange (CFFEX), whose CSI300 contract is only available to onshore traders, sources familiar with the matter said.

Some CFFEX executives worry that allowing the CSI300 contract to trade in Hong Kong would pose a commercial threat to CFFEX, and their concerns have only grown since the sell-off in Chinese markets, which have fallen by about a third since mid-June.

The CSI300 is one of the most traded contracts globally.

"They don't have a done deal. There are voices within the CFFEX that don't think it's a great idea because ordinarily a contract trading on two exchanges in the same time zone wouldn't work, usually one contract dies," said a source briefed on the talks.

The China Securities Regulatory Commission (CSRC) has partly blamed the sell-off on "malicious" short-selling and has been scrutinising foreign trading accounts, checking that their use of index futures has been for hedging rather than speculating.

The authorities have also made it more difficult to borrow for trading futures, limited trading in some contracts and has sent the police to investigate individuals and institutions accused of illegal trading behaviour.

"Now with this (crackdown) it's providing all the more firepower for those that don't want it to happen, as it will also be harder for the CSRC to control shorting if the contract trades in Hong Kong," the source added.

HKEx wants to announce the launch of CSI300 futures along with the expansion of a Hong Kong gateway for foreigners investing directly in China-listed shares. The two initiatives would complement each other because foreigners could use the HKEx futures contract to hedge their Chinese stock holdings.

The Hong Kong-Shenzhen Connect scheme, an extension of the existing connection between the Hong Kong and Shanghai exchanges, is scheduled to be launched by year-end.

China's regulators had pushed the plan for CSI300 futures to be traded in Hong Kong, despite opposition from within CFFEX, as part of the Connect scheme to gradually open up the mainland's equity markets, a second source said. It was unclear if the regulators now shared some of the CFFEX concerns.

HKEx declined to comment on the detail of discussions. "We have said from the beginning that the Connect concept can be extended to other asset classes and we have been expressing an interest in building an equity futures link with the mainland," the exchange said in a statement.

"However, no concrete timetable has been set." The CSRC, which oversees the Connect scheme, did not answer calls requesting comment. CFFEX did not respond to requests for comment. The Hong Kong Securities and Futures Commission declined to comment.

REUTERS

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