Metal brokers in China may soon be able to trade international markets

The Chinese financial market regulator is expected to finally allow local brokerages to work as agents for local investors for overseas futures trading in 2014, according to market sources.

“The general expectation is that the Chinese Securities Regulatory Commission [CSRC] will start issuing licenses for overseas futures trading agent service this year – it is their style to do one big thing each year,” a senior official at a major local brokerage said.

“The likelihood is strong,” a second source said. “Especially given the fact that the Shanghai Futures Exchange has been striving to launch a dollar-denominated crude oil contract in the Shanghai Free Trade Zone.”

Foreign investors would have to be allowed in if the crude oil contract trading is to be active and globally influential on the international market. And as investors have to trade through exchange members, brokerages firms have to be able to work as representatives of foreign investors, the source said.

“Our understanding is that agent services should be two-way, helping to let in foreign investors as well as letting out domestic investors,” he said.

Three local brokerages, including China International Futures, COFCO Futures and Yongan Futures, were selected for a trial program for oversea futures trade agency services in 2011.

At the end of 2012, then-CSRC chairman Guo Shuqing summoned about 20 local futures brokerages for a meeting, during which he disclosed his intention to start the overseas futures trading agent services in the following year, according to sources.

“At that time, the CSRC was also planning a [minimum] threshold of, say, a capital fund of at least 500 million yuan for brokerages. But some argued that this was not necessary, and that they should be allowed as long as their investors have the need to trade overseas,” a third source said.

The progress of the policy was delayed after Guo was replaced by Xiao Gang in 2013, however,

some local brokerages have still been making preparations for the new business.

Yongan Futures and Guotai Junan Futures, for example, have joined hands with US-headquartered CME Group for investor education opportunities in China.

China’s state council banned overseas futures trading agency services in March 1994, in a move to clamp down on rampant speculation in local futures markets, as well as the surge in cross-border trading that resulted in a large number of losses and legal disputes.

Currently, only 31 state-owned enterprises are allowed to trade in overseas futures markets, and six futures brokerages have branches in Hong Kong.

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