2022.09.09 XIE, Qing (Natasha)、 ZHANG, Chi (Austin) LUO, Danchen
1. Exchanges Announced List of Contracts Permissible for QFI Trading
The QFII/RQFII Rules , which took effect on November 1, 2020, allowed Qualified Foreign Institutional Investors (“QFII”) and RMB Qualified Foreign Institutional Investors (“RQFII”) (collectively, “QFIs”) to invest in financial futures and options, and commodity futures and options. A year later, the CSRC released the Announcement on Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors Participating in Financial Derivative Trading ([2021] No.24). This allowed QFIs to trade commodity futures, commodity options, and stock index options listed and traded on the futures exchanges starting from November 1, 2021, provided that the trading of stock index options be conducted for hedging purposes only. Since then, foreign institutional investors are eager to know when the futures exchanges would announce the specific variety and number of futures and options contracts that would be permissible for QFI trading.
On September 2, 2022, the Shanghai Futures Exchange (SHFE), the Shanghai International Energy Exchange (INE), the Dalian Commodity Exchange (DCE), the Zhengzhou Commodity Exchange (ZCE) and the China Financial Futures Exchange (CFFEX) respectively announced the following futures and options contracts permissible for QFIs to trade, effective immediately:
Futures Exchanges | Futures Contracts | Options Contracts |
SHFE | Gold, Copper, Aluminum, Zinc, Silver, Steel Rebar, Hot-Rolled Coils | Gold, Copper, Aluminum, Zinc |
INE | Crude Oil, TSR 20, Low-Sulfur Fuel Oil, Bonded Copper | Crude Oil |
DCE | No.1 Soybean, No.2 Soybean, Soybean Meal, Soybean Oil, RBD Palm Olein, Iron Ore, Linear Low-Density Polyethylene (LLDPE) | No.1 Soybean, No.2 Soybean, Soybean Meal, Soybean Oil, RBD Palm Olein, Iron Ore, Linear Low-Density Polyethylene (LLDPE) |
ZCE | Purified Terephthalic Acid (PTA), Methanol, White Sugar, Rapeseed Oil, Polyester Staple Fiber | Purified Terephthalic Acid (PTA), Methanol, White Sugar, Rapeseed Oil |
CFEEX | CSI 300 Index Futures, CSI 500 Index Futures, CSI 1000 Index Futures, SSE 50 Index Futures (all tradable previously) | CSI 300 Index Options, CSI 1000 Index Options |
2. Next Steps
To participate in the trading of the above futures and options contracts, QFIs are required to first submit the filing form for changes of their investment plan to the CSRC through custodian bank and apply for the inclusion of specific futures and options contracts into their investment plan. QFIs may apply for the corresponding trading code and start trading via their entrusted futures broker only after the completion of the CSRC filing. It is worth noting that if the updated investment plans involve any strategy like automated trading, the CSRC would likely further require the QFIs to disclose more information based on the principle of prudent regulation.
According to the announcements of the futures exchanges, a futures broker, if entrusted by a QFI for trading of relevant futures and options contracts, shall handle the account opening formalities for the QFI in accordance with the Administrative Provisions for Opening Futures Accounts for Clients and the Operational Guidelines for Account Opening Services for Special Institutional Clients issued by the China Futures Market Monitoring Center (CFMMC). Such QFI shall submit a letter undertaking that the trading of commodity futures, commodity options and stock index options through the QFI channel will not involve structured products business, nor involve any cross-border derivatives transactions entered into with local securities companies or related hedging transactions. We suggest that our QFI clients closely monitor such regulatory requirement and participate in the relevant futures trading in a prudent manner.
3. Our Observations
The futures exchanges opened a total of 39 commodity futures and options contracts to QFIs, which has to a large extent met the needs of QFIs. This is in addition to the scheme of internationalization of specific futures contracts, whereby foreign investors can directly trade a total of nine internationalized futures and options contracts (i.e., Crude Oil, Iron Ore, PTA, Low-Sulfur Fuel Oil, TSR 20, Bonded Copper, Palm Oil). Compared with the scheme of internationalization of specific futures contracts, QFI applicants or license holders, although offered with a much larger scope of permissible contracts, face higher access conditions and stricter disclosure requirements.
Recently, the CSRC restated its plan to further promote the opening-up of the futures market, including promoting the inclusion of oil and oil-bearing materials futures and options to the scheme of internationalization of specific futures contracts to attract the participation of foreign investors as well as exploring a two-way opening up of treasury bonds futures. In the long run, we expect that the different channels for foreign investors to invest in domestic futures markets, i.e., the scheme of internationalization of specific futures products, the QFI channel, and other connect schemes, would operate in parallel, competing while complementing each other going forward.
We will continue to monitor the situation of the opening-up of the China’s futures market and keep readers apprised of the latest updates.
