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Earnings sag for futures firms

By Wang Fei'er (Global Times)

08:24, July 17, 2012

Futures companies in China achieved 2.29 billion yuan ($358.94 million) in net profits last year, down 10.91 percent year-on-year, according to the figures released from the China Futures Association (CFA) over the weekend.

As China's economic downturn continues to hound the financial market, a growing number of investors are attempting to short sell futures contracts, which has deflated much of the market's vitality, Sun Yonggang, an analyst from Everbright Futures, told the Global Times.

Meanwhile, in order to dampen speculation, the China Securities Regulatory Commission pushed up minimum price requirements on several commodities contracts, a move which drove many smaller retail investors away from futures trading and further dented turnover in the market, said Sun.

The domestic futures market recorded 1.05 billion transactions worth a combined 137.51 trillion yuan in 2011, down 32.72 percent and 11.03 percent respectively year-on-year, according to CFA data released on January 4.

As futures companies reap the lion's share of their revenues from charges levied on trades and margin fees, both of which are closely linked with market vitality, it's inevitable that the underperforming futures market has shrunk the earnings of these firms, said Shi Yan, deputy director of the research institute at Xinhu Futures.

Regulatory restrictions have also saddled futures companies in China with a very narrow business model that has provided them with few strategies to cope with the current downturn in the futures market, said Shi. Unlike their peers overseas in well-developed markets, domestic futures firms are prohibited from offering advice or consulting services, and can only act as agents who buy and sell contracts for investors, Shi explained.

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