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Regulator: China should meet rising derivatives demand

(Agencies)
Updated: 2009-03-25 16:59

China should accommodate rising demand for derivatives as a tool for hedging risks in the domestic market even as the government clamps down on speculative trading abroad, a senior banking regulator said on Wednesday.

Related readings:  China bans central SOEs' speculative derivatives trading  CIC cautious about financial derivatives investment  Derivatives win over mainland investors

Nearly half of Chinese firms trading derivatives abroad in the past two years did so without government approval, partly due to a lack of tools for hedging risks, said Li Fuan, director of innovation supervision at the China Banking Regulatory Commission (CBRC).

The government has become increasingly concerned about heavy losses racked up by State firms from such illegal activity.

China's State-assets watchdog has ordered State firms to review their futures, options, forwards and swap contracts in overseas markets and quit those with high risks, following high-profile losses on derivatives by companies such as CITIC Pacific and China Eastern Airlines.

"The clampdown won't reduce demand for derivatives," Li told a financial conference in Shanghai. "When that demand accumulates to a certain degree, companies will take risks, with or without government consent."

Li encouraged domestic financial institutions to develop more derivative products to satisfy demand from both companies and individuals but urged them to be more transparent in risk disclosure and to raise the level of investor education.