October 19, 2020
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Recently the CSRC, People’s Bank of China, and the State Administration of Foreign Exchange finally released measures for something we’ve been patiently waiting (and working tirelessly at) for over 2 years: guidelines expanding the scope of investable products for Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors (which we’ll collectively just refer to as QFII).
There was a lot of updating of language on who can access QFII and talk of strengthening supervision, but the big deal as far as we are concerned is the language on what can be invested in through QFII. Here’s a summary from CICC:
Expand the scope of investment in an orderly manner. This allows QFII/RQFII to invest in small and medium-sized enterprise share transfer system listed securities, private investment funds, financial futures, commodity futures, options, etc., allowing them to participate in bond repurchase, stock exchange financing securities, conversion securities lending transactions.
Why is this such a big deal?
We’re still kind of unsure how this is going to play out. Based on research that we’ve done over the past 5 years, our opinion is that this will bode well for Western CTAs and investors that want to enter China, opening up private funds onshore China hedge funds to QFII money – which had previously been rumored many times over the years, but is we think will now actually come to fruition – and allowing foreign access to the Chinese market. We believe regulatory changes as such and more westernization could allow U.S. run funds to self-seed their own strategies on the Chinese market, which previously was not possible as they were only allowed to source capital from in-country. And in addition to the access for investors and traders, this announcement appears to also opens up a funnel of access for more asset classes including NEEQ securities, private investment funds, asset-backed securities, financial futures, commodity futures, options, bond repo transactions, margin trading and securities financing on stock exchanges, and securities lending. The RQFII/QFII rules mark a significant leap in further liberalizing China’s capital markets and lowering barriers to entry through the removal of any track record or AUM requirement for RQFII/QFII applicants.
And while this further opens up the big opportunity that is China, there still remain a morass of issues. Limited market access, nascent trading technology, how and who you can trust in terms of brokerage, execution, and the hedge funds themselves. Over here, we’re rolling up our sleeves and working the relationships and resources we already have to get in position to assist all those who are looking to access these markets. Between our mainland Chinese employees researching and building onshore relationships, our connected OMS (order management system), and due diligence for our manager & strategy partners; we’ve been prepped for this exact regulation ease. So, if you’ve ever had any interest in trading Chinese futures – your time is here. Contact us to review your options.
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