February 16, 2017 / 1:41 PM / 6 months ago

UPDATE 1-China relaxes trading rules on stock index futures

(Adds investor quote, more details)

By Samuel Shen and Nicholas Heath

SHANGHAI/BEIJING, Feb 16 (Reuters) - China's securities regulator said late on Thursday it will relax certain rules on stock index futures trading as the government starts to gradually unwind restrictions imposed during the 2015 stock market crash.

Starting on Friday, rules restricting "excessive trading" in stock index futures will be eased, doubling the previous daily cap of 10 contracts to 20. In addition, margin requirements and trading fees for the derivative trading will also be lowered.

The announcement was immediately seen by some hedge fund managers as a positive harbinger for China's thinly-traded index futures market, but optimism was restrained.

"Spring is coming. This is encouraging," said Fang Ming, a senior executive at Shanghai-based hedge fund house MingShi Investment.

"But the moves are more symbolic in nature, and will give limited support to market liquidity," he said, adding the new daily cap of 20 contracts is still too restrictive.

China imposed a series of restrictions on stock index trading during the stock market crash in the summer of 2015, blaming the derivatives for worsening a crisis that sent shockwaves across global financial markets.

As a result, trading in China's stock index futures tumbled, nearly killing a market that provides much-needed hedging tools for investors in a volatile stock market.

Thursday's announcement shows the government is getting more confident of the stock market, which has gained over 20 percent from a bottom hit a year ago, as the economy shows signs of recovery.

Under the leadership of the China Securities Regulatory Commission (CSRC), the China Financial Futures Exchange has decided to adjust trading rules "in a gradual and orderly" manner, to enable market forces play a bigger role, according to an exchange statement, which was also posted by CSRC.

Margin requirements for what is seen as speculative trading in CSI 300 Index Futures and SSE 50 Index Futures will be slashed to 20 percent, from 40 percent, while the requirements for trading in the CSI500 Index Futures will be reduced to 30 percent from 40 percent. (Reporting by Samuel Shen and John Ruwitch; Editing by Clarence Fernandez/Jeremy Gaunt)

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