QFIIs gain approval to trade crude oil futures

China's State Council modified its futures trading regulations Monday, allowing overseas investors to join crude oil futures trading so as for the world's second largest oil importer to gain a bigger voice in international pricing.

Qualified foreign institutional investors (QFIIs) will be allowed to participate in trading the futures, and detailed measures will be announced soon by the China Securities Regulatory Commission (CSRC), according to a statement published on the central government's official website Monday.

The change is part of the launch of crude oil futures trading, said a separate statement issued Monday by the CSRC.

"The launch of crude oil futures trading needs well-established foreign investors to participate, and granting them access to domestic futures exchanges will increase the trading volume and lift standards to the international level," the statement said.

Currently, QFIIs are only allowed to participate in stock index futures and not commodity futures trading.

The existing regulations were issued in 2007 and the new rules will be effective from December 1 of this year.

The State Council said the revisions were made to resolve new problems in futures trading. Many trading activities in recent years have had obvious features of futures trading but were not properly supervised.

The new regulations will enable China to gain a bigger voice in international crude oil pricing, said Hu Yuyue, director of the Securities & Futures Research Institute under Beijing Technology and Business University.

Despite being the world's second largest importer of oil, China has relatively little influence in price setting as the international crude oil price is mainly based on futures trading in New York and London, said Hu.

China has not conducted trading of crude oil futures so far, and it is most likely to be launched next year on the Shanghai Futures Exchange, which is currently used mainly for trading of industrial raw materials such as metals, energy and rubber products, Hu told the Global Times Monday.

One obstacle that must be dealt with before the launch of crude oil futures trading is deciding which currency will be used for the trading, Gao Hui, vice president of Hangzhou-based Zhongda Futures, a brokerage firm, told the Global Times Monday.

The problem is that crude oil is traded internationally in US dollars, while domestic trading is carried out in yuan, and the yuan is not a freely convertible currency yet, Gao said.

It is expected that crude oil will be priced in US dollars, while dollars and yuan will be used for foreign investors and domestic investors respectively in clearing and settlement, Hu said.