China Expands QDII Program, Approves US Stocks for Chinese Banks

China in April granted approval to Chinese banks to invest in U.S. stocks up to an assigned quota under its QDII (Qualified Domestic Institutional Investor) program, Dow Jones reported. The expansion was the product of an agreement between the China Banking Regulatory Commission and the U.S. Securities and Exchange Commission. According to the story, Chinese investor response to the program is likely to be tepid because of the global equity slump. The current agreement restricts investments to stocks, but mutual funds are likely to be added pending further approval by U.S. regulators. Chinese securities firms and insurance companies already had the green light from their regularors to buy U.S. stocks for client portfolios. Hong Kong, Japan, the U.K., and Singapore had previously obtained approval for Chinese investment under the QDII program, which was started in 2006. Although Chinese regulators have approved a total of $50 billion in quotas to date, only an estimated $7.1 billion has been invested as of the end of 2007.

China's Oil Consumption Hits Record

Despite soaring crude and product prices, China's consumption of crude oil and refined products both hit record highs in the first quarter of this year, reports "China Futures Market," a publication of CITIC Calyon Futures. According to a Chinese industry association that tracks petroleum consumption, demand was up 16.5% in the first quarter vs. '07. The article states that government-imposed price ceilings, which blunted the extend of the price rises for end-users, were a major factor in the demand growth.

Source: "China Futures Market," CITIC Calyon Futures Co., Ltd., May 5, 2008.

China Is No.1 in Gold Production

China will become the world's leading gold producer this year, with output reaching 300 tonnes, according to an estimate of the China Gold Association May 6, according to "China Futures Market," the CITIC Calyon Futures newsletter. South Africa, which has been the leading producer since 1905 but whose output has been declining, will fall to second place.

Source: "China Futures Market," CITIC Calyon Futures Co., Ltd., May 5, 2008

HKEx Slashes Size of Equity Futures and Options

The Hong Kong Exchanges and Clearing began listing smaller versions of its existing equity futures and options on April 7. The new contracts are based on 100 shares of the underlying stock, compared with 500 shares for the existing contracts. The existing medium-size contracts will continue to trade until year-end alongside the new contracts, HKEx said.

Tullet Prebon Inks Data Tie-up with China's Wind

Tullet Prebon Information, the data subsidiary of interdealer broker Tullett Prebon, and Shanghai Wind Information, a Chinese financial data and software vendor, announced a "multi-year" joint venture to supply interest rate, fixed income, money market and foreign exchange data to the Chinese market. Wind's 1200 customers are mainly financial institutions such as banks and insurance companies and lease some 25,000 Wind Info terminals. Tullett Prebon Information has concluded similar agreements in India, Indonesia, Japan and Korea.

China Subprime Exposure Limited

China Daily reported in late March that the sub-prime exposure of China's big banks was limited. Bank of China (BOC) and the Industrial and Commercial Bank of China (ICBC), which had the most exposure among large Chinese banks but still a trivial amount, the article said, less than 1% of their total assets. The article was based on research reports by several Chinese securities firms.

China Considering Commodity Funds

The China Securities Journal reports that Chinese regulators would like to develop a domestic commodity futures funds industry as a measure to reduce the retail speculative share of the Chinese futures trading and to professionalize the market. No timetable or specifics have been announced but funds and the role of CTAs are reportedly being studied.

China's Futures Industry Squeezed for Talent

CCTV, China's government television channel, reported that the country's futures industry was short of needed employees. A professor at China Agricultural University said that China's 10,000 futures brokers are only a third the number needed.

Chinese Banker Joins ISDA Board

A Chinese financial institution will be represented on the board of directors of the International Swaps and Derivatives Association for the first time, following the election of an executive from the Industrial and Commercial Bank of China. Lili Wang, senior executive vice-president at ICBC, was elected to a two-year term beginning April 17.

ISDA also announced that it hired Jacqueline Mei Lin Low as senior counsel, Asia. She will be based in Singapore and will report to David Geen, ISDA"s general counsel, based in London. She will cover legal and documentation matters and coordinate with colleagues on regulatory issues in the Asian region focusing on South Asia. Low has served as co-chair of the ISDA Asia-Pacific Legal & Regulatory Committee since May 2004 and has been a frequent speaker at ISDA conferences. She will join ISDA from DBS Bank, where she was the managing director and regional treasury counsel, heading the global financial markets treasury legal group.

Merrill Announces Expansion Plans for China

John Thain, the chief executive officer of Merrill Lynch, announced during an April visit to China that the firm plans to expand in a wide range of financial businesses within China, including brokerage and wealth management. Merrill recently raised $12.8 billion in capital, much of it from Asian investors, to shore up its balance sheet.

India Widens Ban on Commodity Futures Trading

India added more products to the banned list for futures trading on May 8. The Forward Markets Commission implemented a ban on soybean oil, rubber, chickpeas and potatoes for at least four months. The measure was taken as part of the Indian government's attempt to restrain inflation, which reached 7.57% in April. The four commodities had a combined turnover of some 12 billion rupees, or $288 million, on the Multi-Commodity Exchange (MCX). Ironically, an expert panel appointed by the government had released a report in April asserting that a ban on futures was not advisable because there was "no conclusive evidence to suggest that futures trading contributed to price increases." The government earlier banned futures trading in rice in 2006, added rice, wheat, urad and tur in January and February of last year.

SEBI Issues Rules for DMA in India

The Securities and Exchange Board of India has released a circular explaining rules for Direct Market Access. DMA is a practice whereby clients can enter orders directly to exchange servers, decreasing latency and increasing trading efficiency. DMA is in strong demand with traders who value speed in their trade orders. The regulations require DMA orders to be routed through brokers' systems and to be identifiable as "DMA" orders. The servers routing the orders must be in India. The circular requires brokers to formulate and implement "know your customer" criteria for clients applying for DMA access and to perform regular system audits. SEBI will do a review of the new rules and their effectiveness in November.

NCDEX Launches CER Carbon Credit Futures

India's National Commodity & Derivatives Exchange launched futures on "Certified Emission Reductions" on April 10. The launch makes India the first developing-country exchange to offer a futures contract on emissions. CERs are already traded on European exchanges Nordpool, the European Climate Exchange and the European Energy Exchange. Although India has not made any emission reduction commitments under any international agreement, India is the largest net supplier of CERs after China. An OTC market for CERs has already been functioning, but NCDEX hopes that the greater transparency and liquidity of futures will fuel the success of its product.

India Names New SEBI Chief

The Indian Government has appointed Chandrasekhar Bhaskar Bhave as the new chairman of the Securities and Exchange Board of India for a period of three years. He replaced M. Damodaran who reached the end of his term as chairman. Bhave, a career bureaucrat with a degree in electrical engineering, was a senior official at SEBI from 1992 to 1996, and played an important role in the reforms that led to the creation of the National Stock Exchange of India. Bhave is presently the chairman and managing director of National Securities Depository Limited, where he is spearheading a drive to shift from paper to electronic documentation of share certificates.

FIA Urges Indian Government to Drop Proposed Tax on Commodity Futures Transactions

The FIA sent a letter to the Indian government on April 11 expressing strong opposition to the recently proposed transaction tax on commodity futures. The letter was sent to Prime Minister Manmohan Singh, Minister of Finance P. Chidambaram, Minister of Agriculture Sharad Pawar and other senior government officials as well as key members of Parliament. In the letter, FIA President John Damgard described the "negative consequences" that typically flow from transaction taxes, and warned that the proposed tax could result in driving trading volume to foreign exchanges and hampering the future growth of India"s commodity futures exchanges.

India Moves Closer to Launch of Currency Futures Market

The Reserve Bank of India in April released its final report on the use of currency futures, a key step in establishing the regulatory framework for the introduction of currency futures in India. The central bank's report said banks would be allowed to trade for their own account, clients' accounts and as professional clearing members. The report recommended the adoption of a standard contract design across exchanges, at least initially, and a standard contract size of $1,000. Foreign institutional investors and non-resident Indians will be allowed as hedgers in the currency futures market but only after the market stabilizes, the report said. In a separate announcement, the central bank said a "standing technical committee" has been set up with the Securities and Exchange Board of India to advise on operational aspects in regard to trading of currency futures on exchanges. "In consultation with the Sebi, it has been decided that currency futures will be introduced in the eligible exchanges and the broad framework is expected to be finalized by the end of May 2008," the central bank said in its annual policy statement on April 29.

India: The Problem with P-Notes

Futures Industry, the magazine published by the Futures Industry Association, has an article in the February/March issue by Lauren Teigland-Hunt on the Indian government's decision to clamp down on participatory notes, an instrument widely used by offshore investors to access India's markets.

Wheat Futures and India: To Hedge or Not to Hedge

Futures Industry, the magazine published by the Futures Industry Association, has an article in the February/March issue on the Indian Wheat Futures market. The article, which was written by Patrick Catania, describes the reasons why India has shifted to being a net importer of wheat and looks at the government's use of foreign futures and options to hedge the risk of unexpected price movements.

Bombay Stock Exchange to Acquire Stake in MCX

The Bombay Stock Exchange agreed to acquire a 26% stake in the National Multi Commodity Exchange of India. Separately it was also reported that the BSE would consider allowing to trade MCX products on the 15,000 or so terminals used by its members. The BSE is India's oldest exchange but it fell behind when new, more innovative exchanges were established in the 1990s.

In related news, the Indian government on May 2 approved NYSE Euronext's proposal to buy a 5% stake in the Multi Commodity Exchange for 2.19 billion rupees. The acquisition was announced in February. Citigroup, Merrill Lynch and Fidelity also own shares in the MCX. MCX trades 56 commodities and accounts for 80% of India's commodities turnover. Last year the BSE sold a 51% stake in itself to a group of investors led by Deutsche Boerse and SGX.

New Management at NCDEX and MCX

The National Commodity and Derivatives Exchange named Ramalinga Ramaseshan, a senior civil servant who retired in February, as chief executive officer. He succeeded P. H. Ravikumar, who joined NCDEX in 2003 and whose five-year term expired at the end of April. Ramaseshan belonged to the Karnataka Cadre of the Indian Administrative Services and his last position was that of the Chief Election Officer and ex-officio Principal Secretary to the Government of Karnataka. He also served as regional head of the National Stock Exchange at its New Delhi office from November 1996 to October 1998.

Multi Commodity Exchange of India promoted Joseph Massey to managing director and chief executive officer. Jignesh Shah, the technology executive and entrepreneur who founded the exchange, will now serve as vice chairman. In addition, Dipak Shah was appointed as MCX's chief market operations officer. He previously was chief executive officer of OTC Exchange of India. MCX also appointed KRCV Seshachalam, a nine-year veteran of the Securities and Exchange Board of India, as chief regulatory compliance officer. In addition, Nayan Mehta, formerly with the National Stock Exchange of India, was appointed chief finance officer, and Parag Jain, a former deputy general manager at SEBI was appointed chief of membership & inspection.

TSE to Use Liffe Connect for Options Trading

The Tokyo Stock Exchange has become the latest Japanese exchange to choose a foreign technology company to replace its trading platform. TSE announced on April 28 that it plans to create a new trading system for its equity options market based on the Liffe Connect technology owned by NYSE Euronext. The new trading system, called Tdex+, is scheduled to start in the first half of 2009, TSE said. TSE is also planning to introduce major operational and regulatory improvements, including new market maker functionality for the Japanese market, with the launch of Tdex+. The selection of Liffe Connect came just two months after the Osaka Securities Exchange, TSE's main rival, announced a partnership with the International Securities Exchange to create a new options trading platform in Japan. Both exchanges currently trade less than 100,000 equity options per month. The TSE announcement also came four months after the Tokyo Commodity Exchange, Japan"s largest commodity futures market, named OMX as the supplier for its new trading platform scheduled to go live in the first quarter of 2009.

OSE Plans FX Margin Contracts

The Osaka Securities Exchange, seeking to move into the rapidly growing Japanese retail foreign exchange business, has announced plans to introduce nine currency contracts in March 2009. The contracts will be available for trading 23 hours per day and will be supported by one or more market makers, the exchange said. The OSE added that it expects the margin requirement to be approximately one-thirtieth of the notional value. The OSE's move highlights the success of the Tokyo Financial Exchange in capturing a share of the enormous retail market for forex margin contracts by offering the safety of an exchange-traded environment with a central counterparty. TFX's seven forex margin contracts, which have market-making support from Deutsche Bank, Goldman Sachs and UBS, now account for a larger share of the exchange's total volume than its benchmark Euroyen interest rate futures and options. Volume in the TFX forex margin contracts has been growing at approximately 30% per year.

Japan's OSE Extends Evening Trading Session by One Hour

The Osaka Securities Exchange announced on May 24 that it will extend its evening trading session in October by one hour to 8:00 p.m. in response to requests from investors. The exchange introduced the evening session in September 2007.

Japan"s TSE Launches Market-Maker Program to Boost Topix Options, Opens Evening Session for Topix Futures and Options

The Tokyo Stock Exchange plans to launch an "options liquidity provider" program on June 1 to increase liquidity in its Topix stock index options, the exchange announced on March 25. Under the terms of the program, qualifying liquidity providers will receive a 25% refund of their trading fees. The exchange also plans to waive all trading fees during the summer months, and will reduce trading fees for Topix futures for traders active in Topix options. The TSE also announced the introduction of several new products on June 16, including mini Topix futures and Topix Core 30 futures. In a related announcement, the TSE said it will begin an evening session on June 16 for the trading of Topix futures and options and certain other index products. The trading hours will be 4:30 p.m. to 7:00 p.m, matching the evening session offered by the Osaka Securities Exchange for its Nikkei 225 futures and options. The exchange"s current daytime trading session for the Topix products ends at 3:10 p.m. The exchange already offers evening trading for its JGB futures and options.

SGX Cuts Latency to Less than One Millisecond

Singapore Exchange has signed an agreement with Singapore Telecommunications to provide traders with low latency access to SGX securities and derivatives markets, the exchange announced on May 20. The new proximity hosting service, which will be housed in SingTel's data centers, allows SGX members and their customers access to SGX's trading engines in less than one millisecond, more than four times faster than the current rate, the exchange said. The new service will go live in August and the exchange has begun taking applications, according to an SGX spokeswoman.

Australia's SFE Eliminates A$700 Million Cap on Non-Cash Collateral

SFE Clearing, the clearinghouse that handles trades at the Sydney Futures Exchange, has eliminated an A$700 million cap on the amount of non-cash collateral that clearing participants can deposit against margin obligations. The A$700 million limit has occasionally prevented clearing participants from replacing cash with non-cash collateral, SFE Clearing explained in a April 14 notice. Removing this limit "will be of significant benefit to clearing participants," the clearinghouse said. At the same time, however, SFE Clearing implemented a new notification requirement for filing requests to replace cash with non-cash collateral. Clearing participants must now provide two business days notice for any such request in excess of A$50 million. This will assist SFE Clearing "in better managing any liquidity impact," the notice said. Note: these arrangements do not apply to initial margin requirements.

ASIC Names New CEO

The Australian Securities and Investments Commission named John Bligh, a veteran IT consultant, as its chief executive officer, a newly created position. Bligh also was appointed regional commissioner for the state of Victoria. Bligh has 34 years of experience in the IT and services industries and most recently ran his own consultancy. Before that he was executive director of services for Accenture Asia Pacific, and before that for IBM as vice president, IBM Asia Pacific business transformation services.

Korea's FSC Proposes Deregulation

Korea's Futures and Securities Commission in March issued a proposal to ease restrictions on bank ownership by non-banks, privatize certain government-owned banks, and allow brokers and insurers to own non-financial firms via holding companies. According to a report by JPMorgan Securities analysts in Seoul, the initiative is aimed at allowing both financial and non-financial firms, including the chaebols, more flexibility in ownership and governance structure than is possible under the current system, which has led to cumbersome, circular ownership chains. Ultimately, the objectives are to enable Korean banks to become more competitive with their regional and global peers and facilitate privatization of the government-owned banks, the report said. The FSC has plans to propose additional deregulation of the financial sector this summer, such as further opening brokerage and asset management to new entrants.

Korea Exchange Elects New Leadership

The Korea Exchange elected Lee Jung-hwan to a three-year term as the exchange's chairman and chief executive officer. Lee, who succeeded Lee Young-tak joined the exchange in January 2005 as president of the exchange's management strategy division. He previously held several senior positions in the Korean government. The exchange also announced that Lee Chang-ho, former chief of the National Statistical Office, will succeed Lee Jung-hwan as president of the management strategy division, and Lee Kwang-soo, former assistant director of management strategy division will succeed Ok Chi-jang as the head of securities market division

Bursa Malaysia Hoping to List Palm Oil Futures on CME's Globex

Bursa Malaysia hopes to do a deal with the CME Group this year to list its crude palm oil futures contract on Globex, according to Bursa Malaysia CEO Datuk Yusli Mohamed Yusoff. He said at the company's annual meeting that the CPO contract would find synergies with the CME grain and soybean oil contracts. He added that Bursa Malaysia plans to become a hub for commodity trading in Southeast Asia.

In related news, CME Group appointed Nelson Low as director, commodity products, Asia. He will be based in Singapore and will report to Robert Ray, managing director, commodities, equities and international sales. Low previously worked at the Singapore Exchange as vice president, product and business development.

Bursa Malaysia Introduces Electronic Order Entry for Derivatives

Bursa Malaysia on March 17 introduced "direct market access" for its derivatives market. The exchange explained that this will allow investors to route orders electronically to the exchange through local brokers, rather than by transmitting orders via telephone or fax. The exchange also published a "DMA Handbook" describing the operational requirements for electronic access. The booklet mentioned that later this year brokers will be able to connect to the exchange's gateway via a FIX 4.4 application programming interface.

Nymex President Discusses Dubai Prospects

In a wide-ranging interview published in Gulf News on May 15, Nymex president James Newsome discussed the growth of the Dubai Mercantile Exchange, the competition between DME and ICE Futures, DME's plan to list gold futures, the impact of speculators on oil prices, and the global trend toward exchange consolidation

18th Annual Asia-Pacific Futures Research Symposium Held in Seoul

Nick Ronalds, Executive Director, FIA Asia served as a keynote speaker the Asia-Pacific Futures Research Symposium, an annual event that provides a platform for researchers and practitioners to share and discuss the latest research and issues in derivatives and risk management. The invitation-only event fosters interaction among practitioners and academics and promotes research that advances the state of knowledge in financial engineering. This year's event was held in Seoul, Korea April 3-4.

CFTC Commissioner Visits Asia

CFTC Commissioner Bart Chilton visited Japan, Hong Kong, and Singapore in early March to meet with industry participants and engage in discussions on issues of import to the regional and global industry. In Japan he met with members and guests at an event hosted by FIA Japan, while the Hong Kong and Singapore events were hosted by FIA Asia.

Chilton was nominated by President Bush to a second term as CFTC Commissioner in early April. A Democrat, Chilton worked for Agriculture Secretary Dan Glickman in the Clinton administration and for former Majority Leader Tom Daschle, D-S.D. He joined the CFTC last August for the remainder of a five-year term. If confirmed by the Senate, he will serve a full five-year term expiring in April 2013.

Global Futures and Options Trading Rises 28% in 2007, FIA Reports

More than 15 billion futures and options contracts changed hands during 2007, an increase of 28% from the previous year, according to the FIA's annual volume report released on March 10. Looking back at the last four years, worldwide volume rose 28% in 2007, 19% in 2006, 12% in 2005, and 9% in 2004. The last time that volume grew this rapidly was in 2003, when volume jumped 30% from 6.2 billion to 8.1 billion.

FIA "Strongly Supports" Proposed CFTC Exemption for Foreign Brokers

The FIA filed a comment letter with the Commodity Futures Trading Commission on Feb. 27, saying it "strongly supports" a proposed exemption from the CFTC's registration requirements for foreign brokers that are affiliated with U.S. futures commission merchants. As explained in the letter, the proposed exemption would codify several no-action letters adopted by the CFTC's Division of Clearing and Intermediary Oversight, "pursuant to which foreign affiliates of certain U.S. FCMs have been authorized to accept orders from U.S. institutional customers for execution on U.S. designated contract markets notwithstanding that such affiliates are not registered with the commission as introducing brokers."

In other words, the proposed Regulation 3.10(c)(4) would allow certain foreign firms to act as introducing brokers with respect to trading on U.S. exchanges without requiring them to register as introducing brokers. The exemption would be limited to foreign firms that are affiliated with a registered FCM and that already have obtained exemptive relief from the CFTC pursuant to Regulation 30.10. In addition, the foreign firm would not be permitted to solicit any U.S. customers for trading on U.S. markets nor handle any U.S. customer funds for trading on U.S. markets.

The proposed exemption, which was requested by the FIA Law & Compliance Division, "has become increasingly important to FCMs and their affiliates as their institutional customers extend their trading activities to a growing number of international markets," the FIA letter said. If the proposed exemption is implemented, FCMs and their affiliates that wish to take advantage of this relief will not have to file separate no-action requests, the letter added. The letter did take issue with one aspect of the proposal; the FIA said it opposed the adoption of a minimum capital requirement for affiliated FCMs because these firms will be acting only in the capacity of introducing brokers with respect to transactions on U.S. markets.