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China regulator to tighten derivatives supervision

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The China Securities Regulatory Commission is to increase its supervision and scrutiny of derivatives business in the country’s stock markets, including so-called DMA-Swap products, according to a report by Reuters.

The regulator announced the plan on Wednesday and also confirmed that hedge fund Shanghai Weiwan Private Fund Management has been banned by the China Financial Futures Exchange (CFFEX) from opening positions via several accounts for 12 months, as punishment for excessive, high-frequency trading in share index futures. The exchange has also confiscated RMB8.9m ($1.24m) worth of “illegal gains” from the fund.

The moves are part of a wider initiative by Chinese authorities to boost confidence in the country’s ailing stock markets, which are currently languishing near five-year lows.

In a statement referring to DMA-Swaps, whereby hedge funds borrow from brokerages to trade, the CSRC said: “Steadily reducing leverage” would help “prevent and control market risks, and is good for stable and healthy operations of the market”.

DMA-Swap products currently account for roughly 3% of daily trading volume, according to the CSRC.

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