China plans to allow foreign investors to trade its proposed crude futures contract as the world’s second-largest oil consumer seeks to bolster its influence in determining benchmark prices.
The Shanghai International Energy Exchange will allow foreign investors to trade through agents that have net capital of at least 30 million yuan ($4.8 million) or the equivalent in foreign currency, according to draft rules published on its website on Wednesday. It will accept foreign-denominated funds, standard warehouse receipts, treasury bonds and securities with “stable value and high liquidity” as collateral.
China wants more control over oil pricing as its reliance on crude imports increases. The nation’s overseas shipments as a share of consumption will surpass 60% this year for the first time, up from 59.5% in 2014, according to China National Petroleum Corp. The government introduced a domestic crude futures contract in 1993, stopping a year later because of an overhaul of its energy industry.
“The draft guidelines verify for the first time that foreign investors will be able to trade the crude contracts,” Li Zhoulei, an analyst at Everbright Futures Co. in Shanghai, said by phone. “They also designed some clauses such as the one on margin requirement to boost overseas interest.”
Foreign entities that don’t trade through agents should have a minimum of 10 million yuan of net capital or the equivalent, according to the exchange, which is seeking public feedback on the draft rules until April 18.
The guidelines didn’t elaborate on some of the “major issues” such as tax and foreign exchange rates, which indicates that more fine-tuning is needed before the contracts can be listed, Li said.
The China Securities Regulatory Commission, which originally planned for trading to begin last year, approved the latest listing in December. The contract may start this year, Shanghai Futures Exchange’s Chairman Yang Maijun said last week.