CHINA will not open its treasury futures market to commercial banks in the near future due to concerns about a possible jump in volatility as the number of bond defaults grows, the banking regulator said.

    Treasury futures trading has “relatively high leverage, and under extreme circumstances may enlarge market volatility,” the China Banking Regulatory Commission (CBRC) said in a statement, explaining why the government is cautious.

    The CBRC made the comments in response to a proposal urging the government to allow banks to participate in treasury futures trading as soon as possible, according to the statement dated July 28.

    Since last summer’s stock market crash, China has tightened rules in the financial sector, having restricted trading in the stock index futures, banned grey-market margin financing and curbed shadow banking businesses.

    On Tuesday, China bond futures posted their sharpest fall in three months as the prospect of more short-term liquidity injections by the central bank into the financial system reduced expectations of more aggressive policy easing such as cuts in the benchmark interest rate or banks’ reserve requirements.

    However, the CBRC noted that in the long term commercial banks, which are the main participants in the government bond spot market, need to participate in treasury futures trading to manage risks, and regulators will actively work to improve mechanism of that market.

    China re-opened its treasury futures market in 2013 after a 18-year ban, which was imposed in the aftermath of a major trading scandal. (SD-Agencies)