Leo Melamed, the globally recognized founder of financial futures and Chairman Emeritus of CME Group, said the time has come for China to open its futures market to the outside world during a luncheon party on March 26 at this year's Boao Forum for Asia Annual Conference.
Leo Melamed (FILE)
"China's future market has grown extremely well, but it is still not fully mature. Why? Because you can't be a fully mature market if you are insulated and isolated," he said.
"The Chinese futures market is still internal. They do not have international competition, involvement or participation. That has to happen. And that is the next stage in the development of a futures market," Melamed added.
Melamed said that the China Securities Regulatory Commission (CSRC) is moving in that direction.
On December 12, 2014, the CSRC announced its approval for the Shanghai International Energy Exchange Corp. (INE) to carry out crude oil futures exchange.
China is likely to launch crude oil futures trading this year, the country's first international futures contract, Yang Maijun, President of the Shanghai Futures Exchange, said on March 10.
Melamed said his group has been helping the country to open its crude oil futures exchange and now is the right timing.
"The timing is right. They have been working on it with the CME group. We have teams of people that come back and forth between China and Chicago. We have been doing this for a long time. Everything is ready for it. Not all the things we suggested are being used but most of them are. I believe this market will be a very successful market as far as timing goes. I would have done it already years ago but better now than never," said Melamed.
He said that China's intention behind the new initiative is to have a bigger say in determining the price of oil they import.
"China imports something like 60 percent of the energy it needs from the world, and they get no input in determining what they pay for oil. One way to solve that dilemma is to have a real market in energy like the one the INE will have if it opens up and includes participation from the rest of the world as it intends," said Melamed.
When asked about how to solve the problem of over-speculation of the futures market in China, Melamed believed that opening the market up will be the answer.
"A good market has to have both speculation and commercial activities. In China, the balance is not yet right. But it will be when the markets open up here and you invite internationalization and globalization of the markets. Then they will balance out and be better."
(Reporting from Boao, Hainan)