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Business
Print Edition> Business
UPDATED: April 27, 2013 NO.18 MAY 2, 2013
A New Start
Treasury futures trading is back after a near two-decade hiatus, but what's new?
By Lan Xinzhen
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WATCHING THE BOARDS: Traders work at the Shanghai Futures Exchange (PEI XIN)

China's treasury bond futures, suspended for 18 years, has seen some vital progress in its restart. Industrial insiders say the China Securities Regulatory Commission (CSRC) has submitted to the State Council the scheme for launching treasury bond futures. The State Council, after consulting with related ministries and commissions, may approve the introduction of treasury bond futures in mid or late May. At that time, both domestic and foreign investors will be able to purchase China's treasury bonds via futures exchanges.

The introduction of treasury bond futures is important for China's financial sector. On February 13, 2012, the CSRC started mock trading of treasury bond futures and opened it in steps for commercial banks, securities companies and fund management companies to participate. The Ministry of Finance (MOF) issued a document in late March this year paving the way for treasury futures.

China's launch of treasury futures aimed at improving the financial market system, deepening financial reform and making the treasury bond market better serve the real economy. In the meantime, it can also provide risk control tools for overseas investors, which is conducive to making Chinese treasury bonds more attractive and accelerating the yuan's internationalization.

According to MOF figures, at the end of 2012 the balance of Chinese treasury bonds stood at 7.8 trillion yuan ($1.25 trillion), of which 85 percent was tradable in the market. Marketoriented trading of treasury bonds is the basis for the launch of treasury futures in China. Moreover, the spot market of China's treasury bonds is big enough to support the operation of the treasury futures market.

To date there are 28 futures exchanges in the world that have launched treasury futures. All of the world's 15 largest economies have launched treasury futures.

Jia Kang, Director of MOF's Research Institute for Fiscal Science, said the restart of treasury futures will have three positive effects on China: promoting the issuance of treasury bonds, facilitating the implementation of the country's fiscal policy and improving the benchmark interest rate system.

Futures companies are also ready for the launch of treasury futures. They have conducted internal training sessions in operating strategies and risk control.

Cheng Chen, an analyst with China Galaxy Securities Research Institute, says the institute has set up a special research group, with market follow-up and studies carried out. It now issues daily and monthly reports and will soon issue annual reports. In the future the institute will conduct specific studies for different market participants. "Everything else is in place and all that is needed is the official launch of treasury futures," Cheng said.

Before CITIC Securities Futures Co. Ltd. started mock trading of treasury futures, its futures research department had issued a series of internal research reports on interest rate futures, derivative products such as interest rate swaps and major trading strategies in foreign countries. However, the capital market seems

not so enthusiastic about the treasury futures and is full of doubts and concerns. The failure the first time around has not been forgotten.

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