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China makes FX rules ready for foreigners to trade its commodity futures

[SHANGHAI] Foreign investors will be allowed to transfer either foreign currency or yuan funds into China to trade in the country's commodity futures markets, the foreign exchange regulator said on Friday.

The imminent opening of its booming commodity futures market is a major reform supporting Beijing's efforts to increase its sway on global commodity pricing. China is the top global consumerr of many raw materials.

The securities and futures watchdog 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.

Foreign players, especially institutional investors, will also help develop the sector and usher in international practices, analysts have said.

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.

As of Aug 1, 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.

These funds will not be included when measuring short-term foreign debt at banks.

Among other provisions, those 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 bourse.

The securities and futures regulator, however, has not given details on other domestic futures contracts that would be open to overseas players.

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.