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Regulator strengthens futures risk controls

(Shanghai Daily)
Updated: 2007-03-02 13:41

The securities watchdog has required brokers to ensure investors provide sufficient trading margins for futures contracts as part of an effort to improve risk controls after irregularities were uncovered recently.

Brokerages also have to check their clients' credit profiles and risk-management abilities, the China Securities Regulatory Commission said in a statement. Securities houses must set aside provisions for their clients' portfolios and help cover losses if risks occur, the statement said.

Brokers can order investors to close positions if they don't increase margins as required, it said. The stock regulator noted that several brokerages lacked proper risk controls, which led to recent cases in which clients hadn't provided sufficient margins. The watchdog didn't name any brokers and said margin shortages had been covered.

The margin is the amount required by a securities exchange to cover any liability resulting from positions held by investors. The Shanghai Futures Exchange in November cut the margin for copper to six percent of a contract's value from nine percent in an attempt to make more funds available to trade futures contracts.

Margins for aluminum contracts on the bourse were left unchanged at seven percent at that time. Yesterday's statement ordered brokerages to conduct internal checks immediately to weed out potential problems.