FUTURES EXCHANGE2.JPGWestern
financial firms may soon be allowed to operate in China's new financial
derivatives market, which opened for business today.

The
Shanghai Financial Derivatives Exchange starts mock trading of stock
index futures next week, although actual trade is not expected until
later this year.

Foreigners holding QFII status will also be able to trade in China's future markets
— both commodity and financial — according to an official interviewed
by Reuters, although the breakthrough will not come before next year.

Currently, foreign investors holding QFII quotas can trade stocks and bonds but not derivatives. More on QFII here.

China
already has two stock exchanges in Shanghai and Shenzhen and three
futures exchanges for commodities. This new fourth futures exchange is
the only one specialised in financial derivatives.

Already, the
new Shanghai exchange faces an outside challenger. The Singapore Stock
Exchange has launched a futures contract based on a Chinese A-share
index

As China's financial markets open and the volume of trades
increase, foreign firms need access to financial derivatives to hedge
their growing exposure to China's domestic equities.

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