China unveils cotton futures rules for state firms

China has laid down rules for state-owned firms intending to trade domestic cotton futures in a bid to temper the kind of market speculation that forced the government to shut down dozens of exchanges in the mid-1990s.
State-owned cotton firms would only be allowed to trade futures to hedge risks, regulators said on Thursday after they granted approval for the launch of cotton futures last week.
And trade must be strictly limited to production requirements or raw materials, the China Securities Regulatory Commission (CSRC) said.
"Cotton-related state companies can only conduct hedging they are banned from other types of futures trading," the securities and futures watchdog said in the rules published in official securities newspapers.
"That is aimed at preventing and curbing risks and maintaining the order of futures markets." The onerous restrictions include matching their cotton futures holdings and respective validates to production needs.
Companies must keep files of their trading activities for at least 10 years, the rules said.
The CSRC granted approval for the launch of long-awaited cotton futures to be traded on China's Zhengzhou Commodity Exchange last week, the latest move to help companies' hedge rising risks after the country joined the WTO in 2001.
The exchange, based in the central province of Henna, has yet to announce a timetable, though some officials have said cotton futures could be launched in September.
China accounts for a third of cotton production and consumption in the world and it boasts an annual capacity of five million tonnes but relies heavily on imports due to a consumption of around six million tonnes per year, official figures show.
Cotton futures will be the second derivatives contracts launched in China this year, as regulators have already given their nod for a re-launch of oil futures.
Government officials and industry players have acknowledged a growing need for derivatives amid ever-growing links with global markets, but progress on a slew of proposals has been slow because past failures still rankled.
China used to host trading of numerous derivatives, but the government shut down dozens of exchanges in the mid-1990s to stamp out rife speculation.
It now maintains three commodity futures exchanges, with the other two in the cities of Shanghai and Dalian, hosting contracts for copper, aluminium, rubber, soyabeans, soyameal, and wheat.
The Shanghai Futures Exchange is expected to launch oil futures later this year, exchange officials have said.