INTERVIEW: CME's Melamed Sees China Index Futures Within Year
June 12 2009 - 2:07PM
Dow Jones News
The chairman emeritus of CME Group Inc. (CME) said he expects
Chinese regulators will clear the way for the country's
long-awaited financial futures to launch within the next 12
months.
China's moves to broaden its nascent derivatives markets come as
regulators there consider allowing several domestic securities
firms to register as futures commission merchants, or FCMs, in the
U.S., CME's Leo Melamed said following recent visits with Chinese
regulators.
"This is a real step forward," said Melamed, a former chairman
of CME who now serves as a board member and envoy to China.
Major Chinese companies have been able to access U.S. futures
markets through their international branches, but allowing
institutions seek FCM status in the U.S. offers new evidence that
the Chinese Securities Regulatory Commission is resuming efforts to
open the country's capital markets, Melamed said in an interview
with Dow Jones Newswires.
As the world's third-largest economy, China represents a huge
prize for global exchanges, but efforts by CME and other operators
to draw Chinese traders and align with local exchanges have met
resistance from the CSRC, which favors a cautious approach.
Chinese regulators began considering equity derivatives in 2002,
but the products have stalled as regulators worried that futures
could pressure the underlying markets.
In hindsight, waiting was a wise move, according to Melamed, who
has advised Chinese regulators and exchanges since 1989.
"If a financial futures market had launched [prior to the
financial crisis], it would have been blamed," he said.
With the worst of the financial upheaval likely in the rear-view
mirror, Melamed said Chinese regulators and exchange officials are
now preparing to introduce the long-awaited instruments, letting
investors hedge against movements on domestic stock indexes.
"This will give a security blanket to someone going into the
Chinese equities market," said Melamed.
Barring the return of market chaos, Melamed said China will
launch CSI 300 index futures on the China Financial Futures
Exchange, set up for trading equity index derivatives, by June
2010.
CME maintains memorandums of understanding with the Shanghai
Futures Exchange and Zhenzhou Commodity Exchange, but recently let
a similar partnership with the Dalian Commodity Exchange lapse as
the Chicago-based exchange operator didn't see a tangible business
benefit.
CME wants to forge ties in China that are similar to its
relationship with Brazil's BM&F Bovespa exchange, which
includes an equity swap and technology connections, but Chinese
authorities have limited outside exchanges' participation.
Based on recent discussions with regulators, Melamed said this
could change within five years, with the Shanghai exchange a likely
candidate for a more formal partnership with CME.
China, the biggest owner of U.S. Treasurys, will remain a buyer
of U.S. debt and continue to support the dollar as the world's
reserve currency, Melamed said - if for no other reason than there
isn't any good alternative right now.
That gives CME comfort, he said, as it ensures the importance of
the exchange's Treasury futures markets as a means to hedge
anticipated cash value of the issues.
Melamed dismissed complaints that China hasn't moved fast enough
in developing its domestic derivatives markets.
"Nobody's done what China's done in so little time," he
said.
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com