Sounds like bad news to me<g> -China steps gingerly towards derivatives trading
Reuters
Beijing, October 13
China, which has been nervous about derivatives ever since the 1990s Barings scandal, issued draft rules on Monday allowing banks and other financial firms to tap the market.
Chinese banks are keen to develop the market to help them compete as the country opens up under the World Trade Organisation.
Several state banks have won regulatory approval to settle foreign exchange forwards for domestic firms, but financial derivatives -- spin-offs from the debt and equity markets such as futures, swaps and options -- have been largely untapped.
The proposed regulations, published by the China Banking Regulatory Commission on its Web site (www.cbrc.gov.cn), are open for public feedback until October 25.
The rules were aimed at "standardising and managing derivative deals by financial institutions and help such institutions effectively control risks", the commission said.
Non-financial firms would be banned from trading in derivatives and financial firms, including commercial banks, must get regulatory approval to start such business, the rules said.
To trade derivatives, financial firms must have sound risk-management systems and the official in charge must have more than five years' experience, the rules stated.
The firms must also have two trained dealers and at least one person tasked to control trading risks, it said.
Branches of foreign banks applying for derivative deals in China must show evidence their headquarters were subject to adequate supervision, the rules stated.
Firms that failed to disclose their derivative transactions accurately would be punished.
China's banking sector is bracing for full-blown overseas competition in 2006 when China opens its vast yuan currency business in line with WTO promises.
Rogue trader Nick Leeson brought down British merchant bank Barings in 1995 with speculative derivatives trades, sending shockwaves around the financial world and ringing alarm bells in China, which had yet to put firm markets regulatory systems in place.
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