China Clears Foreign Investors to Trade More Onshore Derivatives

China will allow qualified foreign investors to trade more onshore derivative products in the latest step to open its financial market.

Investors under the Qualified Foreign Institutional Investor (QFII) program will be able to trade commodity futures, commodity options and stock index options starting Nov. 1, the China Securities Regulatory Commission (CSRC) said Friday.

The expansion will offer foreign investors more options for hedging risks and tapping into the country’s vast financial market. Previously, QFII investors were limited to buying stocks, bonds and warrants, fixed income products in the interbank bond market, securities investment funds and stock index futures.

China launched the QFII program in 2002, allowing foreign institutional investors to trade in the country’s stock and bond markets under certain quotas. In May 2020, regulators scrapped the quota limit to encourage foreign participation.

In a major revamp later in 2020, regulators combined QFII and its yuan-denominated sibling, the Renminbi Qualified Foreign Institutional Investor (RQFII) program, while expanding the scope of investment under the combined program. Measures were also issued to lower requirements and simplify the vetting process for overseas investors.

In July, the State Council, China’s cabinet, said it was considering a trial that would allow QFII investors to trade offshore yuan in Shanghai’s Nasdaq-style STAR Market. Currently, the program allows institutions only to remit foreign currency to the Chinese mainland that can then be converted to onshore yuan for investment in China’s financial markets.

The move is expected to help improve the internationalization of the yuan and expand the amount of foreign capital flowing into the board, analysts said.

The latest change is a key step to opening the domestic securities and futures market to attract foreign capital, the CSRC said Friday. Moving forward, the commission will continue working with the central bank and the foreign exchange regulator to assess further expansion of the program, it said.

As of the end of June, QFII investors invested in 484 traded companies in China, holding a combined market value of 241.5 billion yuan ($37.5 billion). More than 400 institutional investors from 31 countries and regions have taken part in the program.

Apart from QFII, foreign institutional investors can also tap China’s capital market through the stock and bond connect programs linking bourses in the Chinese mainland and Hong Kong.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (hello@caixin.com)

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