It is stipulated in Article 6 of the “Provisional Regulations on Administration of Futures Trading” (Provisional Regulations) that “Establishment of futures exchange should be approved by the China Securities Regulatory Commission (CSRC). Without approval from the CSRC, no units or individuals can establish or establish in disguise futures exchanges.”
Spot market is different from futures market in essence. Spot market in China is a place where commodities and goods are exchanged to meet the purpose of production and circulation. Participants of spot market are usually institutions possessing spot goods. Futures market is developed on the basis of spot market and is a financial market involving public credit and interests. Futures market boasting the economic functions of price discovery and hedging is not only a tool for enterprises to avoid risks in spot trading prices but also an investment instrument for speculators who are motivated by profits from price difference. Participants of futures market are comprised of both enterprises producing or trading spot goods and numerous public investors.
Any specific trading technique and means can serve both spot market and futures market. However, if the trading mode used on futures market is wholly transplanted into spot market, the commodity market will be turned into a financial market with public participation. If such a market lacks specific regulator and regulatory laws and regulations, situations against the principle of justice such as market manipulation and investor fraud are likely to happen, under which investors’ financial security and investment interests can not be protected effectively.
As spot market and futures market have different functions and require different supervision, innovation of spot market can not deviate from its nature and function. No matter which specific trading mode is adopted, as long as spot market evolves into a financial investment instrument accessible to a wide range of pubic investors yet lacking appropriate supervision, it will inevitably lead to chaos in market order, huge market risks and even financial frauds by people with ulterior motives. Based on the above considerations, futures trading in disguise is explicitly banned in the “Provisional Regulations”.
