SCH to develop finance products in deal with US exchange firm

The Shanghai Clearing House signed a memorandum of understanding with Chicago-based CME Group Inc, one of the world's largest derivatives marketplaces, to develop products and services for global users as China accelerates its market liberalization and yuan internationalization.

The two organizations announced on Tuesday they will also cooperate in the areas of risk management and market research.

Shanghai Clearing House Chairman Xu Zhen said: "Through this cooperation, we hope to leverage CME Group's international experience in financial innovation and global markets to further enhance our central counterparty clearing mechanisms and financial products innovation, and continue to expand the influence of Shanghai Clearing House in the global financial markets."

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The SCH is committed to setting a benchmark as an internationalized, market-driven clearing services institution, Xu said.

Sun Lijian, deputy dean of the School of Economics at Fudan University in Shanghai, said the joint venture will help China build a better system for risk management, train high-level financial professionals and enhance the ability for financial innovations in line with the nation's actual conditions.

"We'll learn the US trading mechanisms to improve our country's efficiency of resource allocation and ensure fair distribution of benefits among all participants in the financial market," Sun said. "Compared with many detailed regulations for risk control in the US, the negative list adopted by China is too general and must be followed up with workable rules."

One thing China should learn from the US, he said, is how it regulates institutional investors.

"In the US, individual investors entrust their money to institutional investors for better returns as they lack the knowledge to decide how to wisely manage their assets. But here in China, a pressing matter is how to improve market integrity and prevent institutional investors from making money for themselves while leaving their clients exposed to high risks," he said.

Individual investors need to improve their awareness of financial risks and acquire more knowledge about risk management, he said, rather than simply relying on the government to cover potential losses.

China is now preparing for complete liberalization of the financial market. The government will decide when to make the renminbi convertible under the capital account based on the improvement of its risk management ability, Sun said.

"China's individual investors have a passion for wealth management. US financial institutions are eager to learn the Chinese consumers' investment preferences and risk knowledge. It will help them gain more clients by providing the right financial services and giving full play to their own advantages," he said.

Phupinder Gill, chief executive officer of CME Group, formed when the Chicago Mercantile Exchange merged with the Chicago Board of Trade, said the MOU will promote greater cooperation and create a forum for information sharing between the two organizations.

"Through this MOU, we hope to continue to look for opportunities to learn more about Chinese financial markets, and further extend CME Group's reach into the Chinese marketplace," Gill said.