June 27, 2017 / 12:31 PM / 7 months ago

China regulator to adjust capital flow rules if needed after inclusion in MSCI

SHANGHAI, June 27 (Reuters) - China’s securities regulator will strive to reduce policy uncertainty and will adjust capital control mechanisms if necessary to expedite foreign investment in A-shares following their inclusion in the MSCI index, an official said on Tuesday.

But the creation of overseas derivative products based on China indices must be effectively regulated, to prevent them from destabilizing China’s financial system, Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC), told a seminar.

The seminar, jointly sponsored by MSCI and China’s two stock exchanges, was held days after the global index publisher decided to include 222 China “A-shares” into its emerging markets benchmark.

The inclusion would help prop up the value of China’s quality blue-chips, and would help stabilize its stock market, Fang said in his speech, a transcript of which was posted on CSRC’s website.

In an effort to reduce policy uncertainty, “related departments of CSRC should set up regulator communication channels with international institutional investors, constantly listen to their needs, and give timely feedback to their opinions”, Fang said.

In addition, the CSRC would make it easier for global investors to allocate their assets into A-shares, by making adjustment accordingly, to the quota and capital flow mechanisms of major cross-border investment channels, including the “Connect” links, and the Qualified Foreign Institutional Investor (QFII) scheme, Fang said.

However, CSRC and MSCI agreed during the negotiations, that overseas derivative products based on China indexes must be created on the basis of effective cross-border supervision.

“Regarding the pre-approval of derivative products, we’ve made clear two baselines: first, they cannot harm China’s financial stability; Second, main liquidity of key derivative products must stay in China,” Fang said, admitting such a practise does not confirm to international norms.

“To such a big country as China, financial and economic stability is of paramount importance ... China will work with various parties to write new rules that fit globalisation in economics and finance.” (Reporting by Samuel Shen and David Stanway)

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