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