China is taking the first step to relax curbs on trading in stock-index futures that were put in place during the country's 2015 summer market crash, a signal that regulators are becoming more comfortable with the levels at which shares are trading.
Chinese investors will have more leeway in the amount of deposits they have to put down when investing in certain index futures and will be able to trade at a slightly higher volume a day for a single contract, according to statements late Thursday on the website of China Financial Futures Exchange.
Futures on a stock index allow investors to bet on levels of an index at a future date, helping them hedge positions in the stock market. But Chinese authorities limited the use of this tool in 2015 amid worries that speculation in futures was exacerbating declines in the stock market,
The latest measures are incremental but nevertheless a message that China's securities regulator is ready put the market on a path back to normalcy.
"They are getting more confident that the market has stabilized," David Millhouse , head of China research at Hong Kong -based brokerage Forsyth Barr Asia , said of officials at the China Securities Regulatory Commission . "Regulation and shareholder protection have improved significantly over the past year," also contributing to the latest move, he said.
While the new margin and contract levels aren't back to where they were before the 2015 stock market crash, Mr. Millhouse said the measures would help improve liquidity in the futures market, which has been down significantly since.
At one point, CSI 300 Index Futures, which track an index of the 300 largest companies listed on the Shanghai and Shenzhen stock exchanges, emerged as the world's most actively traded stock-index futures product, even topping activity in futures on the U.S.'s S&P 500 index. A boom in Chinese stock trading that took hold in late 2014 fueled activity in futures as more professional investors joined the rally and executed relatively complex strategies that included futures.
When the stock market began to slump, however, authorities zoomed in on short selling, a strategy that allows investors to make money if stocks fall. Part of their scrutiny fell on stock futures trading. By the time China's stock market lost nearly 45% of its value in a little more than two months, authorities had severely crimped usage of stock- index futures for both hedging and speculation purposes. The market effectively became dormant.
As the China Financial Futures Exchange moved to relax restrictions, it said it would curb speculation and crack down on illegal activities.
The new rules go into effect on Friday. The margin requirement on futures trading for the CSI 300 and A 50 stock indexes will drop to 20% from 40%, while the margin requirement on futures trading for the CSI 500 index will drop to 30% from 40%. The percentage represents the portion of the trading value that an investor has to put down as collateral to trade futures. CSI 300, A 50 and CSI 50 are widely used stock indexes representing blue-chip names in both the Shanghai and Shenzhen stock markets.
Furthermore, the threshold that authorities view as "excessive trading" on a daily basis will go up to 20 lots, from 10 lots. Commission costs on all futures trading contracts will be cut to 0.092% from 0.23%
Write to Chao Deng at Chao.Deng@wsj.com
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