Index futures trading, margin trading and securities lending in China finally launched

Purpose – The purpose of this paper is to discuss the trial implementation of stock index futures trading, margin trading and securities lending in China – approved in principle by the State Council and confirmed by the China Securities Regulatory Commission (CSRC) on January 8, 2010. Design/methodology/approach – The paper describes various preliminary rules and regulations for stock index futures trading, margin trading, and securities lending that have been issued starting in 2006 and the latest regulatory developments, requirements and timing related to the trial implementation. Findings – The stringent requirements imposed by CSRC highlights its cautious approach to the trial process for margin trading and securities lending. By defining “securities lending” as the borrowing of securities and the subsequent sale of those securities in the 2006 Trial Administrative Measures, the regulator appears to leave open the possibility of short selling. Practical implications – The Announcement has been warmly welcomed by market participants because index futures trading, margin trading and securities lending are expected to significantly add to the Chinese equity market's liquidity and price discovery process in the long run. Originality/value – The paper provides practical guidance from experienced securities lawyers.