China targeting 2014 launch of first crude oil futures

SHANGHAI: China is aiming to launch its first crude oil futures contract this year, the vice chairman of the securities regulator said on Wednesday, a move that would give the world's second largest oil consumer greater influence in global pricing.

The long-delayed contract, proposed by the Shanghai Futures Exchange (SHFE), will be China's first commodity futures contract that allows participation from overseas institutional investors without setting up a local subsidiary.

The crude oil contract has been delayed since 2012.

Investors are closely watching its proposed launch as the yuan-denominated contract would mark a milestone in China's liberalisation of its capital markets.

Jiang Yang, vice chairman of The China Securities Regulatory Commission (CSRC), said at an industry conference preparatory work for the contract is largely complete and that the exchange will step up coordination with other regulatory bodies to ensure its timely launch.

The contract needs approval from several bodies, including China's foreign exchange regulator as the Chinese yuan cannot be freely converted.

Local media reported on Monday that the State Administration of Foreign Exchange may give foreign investors a daily foreign exchange quota of above US$5bil a day for crude futures trading, higher than the amount proposed by the SHFE in its draft plans.

Citing anonymous sources, the official China Securities Journal said the regulators will need to ensure overseas investors are given sufficient quota to meet their trading requirements, including replenishing capital.

China hopes the contract will become a benchmark in Asia and a successful launch could pave the way for the opening of other commodities derivatives, such as the actively traded copper and soybean futures, to more foreign investment.

Under current plans, the physically deliverable oil contract will use the type of high-sulfur crude grades that China mostly imports. The contract pricing will exclude custom tariffs and value-added tax and allow for physical delivery in bonded storage areas, according to the exchange.

According to draft rules by the SHFE, overseas investors will have a choice on whether to settle their trades in the Chinese yuan or US dollars. – Reuters