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Chinese Regulator Authorizes Commercial Banks to Trade Gold Futures

By Li Chunlan
25 Mar 2008 at 09:26 AM GMT-04:00


SHANGHAI (Interfax-China) -- The China Banking Regulatory Commission (CBRC) yesterday issued permits allowing Chinese commercial banks to trade gold futures on the Shanghai Futures Exchange (SHFE).

Commercial banks are required to be members of the Shanghai Gold Exchange (SGE), China's sole spot gold trading platform, and the SHFE, before conducting gold futures trading through the SHFE. Moreover, banks must have a capital adequacy ratio of over 8%, the CBRC announced.

However, the CBRC has prohibited commercial banks from acting as agents for gold futures in an attempt to minimize insider trading by the banks, which have access to market information through acting as gold warehouses and settlement units when authorized by the exchange.

Chinese commercial banks are spot gold trade dealers, and even some of them are granted gold import and export qualification enabling them participate in the global spot gold trade. The CBRC believes that participating in gold futures trade could enhance commercial banks' competitiveness and grant them an efficient risk management system over a derivative market.

"The move will boost gold futures trading on the SHFE and reduce the difference between spot gold prices and gold futures prices," an analyst from Jinrui Futures, surnamed Li, said. "Though these banks are spot gold traders or even own the SHFE gold delivery warehouses, it's very difficult to reach futures-spot arbitrage as transfer costs from the SGE to future contracts on the SHFE remain high."

The transfer cost of spot gold to the June gold contract stands at a high of around RMB 1,400 ($198.6) per lot (one lot equals 1,000 grams).

"These commercial banks have rich experiences in spot gold trading at home and abroad and they can easily avoid risk by keeping a same amount of gold contracts in different directions in the spot gold market and the futures gold market," Li said.

The June gold delivery contract on the SHFE reached RMB 209.45 ($29.71) per gram at 11:30 a.m. today. Shanghai Au (T+D), the most traded product on the SGE, lost RMB 2.9 ($0.41), or 1.4%, to end at RMB 206.6 ($29.3) per gram.

If the U.S. Dollar Index continues weakening, gold prices will be pushed higher, analyst Liu Zhengdong, from Hongye futures, said.

© Interfax-China 2008. For further information regarding Interfax China Commodities Daily Reports, contact David Harman at [e-mail]. Interfax also publishes a comprehensive China Grains & Soft Special Report in March 2008, contact David Harman for details.

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