BOAO, Hainan, March 29- The Shanghai International Energy Exchange (INE), slated to begin trading later this year, will open the country's futures market to foreign participation.

China's major futures markets are internal and isolated, and have been held back by a lack of foreign participation, Leo Melamed, Chairman Emeritus, Chicago Mercantile Exchange, said at the Boao Forum for Asia (BFA) Annual Conference 2015 in Boao, Hainan province.

The new exchange has the potential to become a hugely successful global market, said Melamed.

The INE, which is based in the Shanghai Free Trade Zone (FTZ), will open crude oil futures to foreign investment, according to a decision by the China Securities Regulatory Commission (CSRC).

Melamed said that China's futures market had passed its preliminary development stage and the opening up "had to happen" as it was "the next stage of development".

Since the first futures exchange was established two decades ago, China's futures trading has boomed. About 40 commodity futures and two financial futures are currently traded on the six major futures markets, covering agriculture, energy, chemical and metal sectors. The annual growth rate of combined futures transactions surpassed 50 percent over the past five years.

However, following a phase of chaotic development during the 1990s, the futures market remained closed to international involvement over fears of financial risks given the immaturity of operational mechanisms and lack of supervision at the time.

As a major producer, consumer and trader of commodities, isolation from global investors has deprived China of pricing power in strategic commodities. As the world's fourth largest crude oil producer and second largest crude oil consumer and importer, China only accounted for about 7 percent of the global crude oil pricing.

Yang Maijun, director of the Shanghai Futures Exchange, which operates the INE, said that the INE would facilitate Renminbi-denominated pricing of commodities and be fully open to overseas investors.

Following the trial of crude oil futures, more products like non-ferrous metals, precious metal and natural rubber could follow, Yang said.

Yuan Guming, president of Jiangsu Dayuanyingtai Mercantile Exchange, said that finding a balance between market supervision and opening-up remains an obstacle to globalizing the futures market.

The CSRC is set to reveal provisional administrative regulations on foreign investors and brokers. Futures legislation has also accelerated as the second draft of the futures law is tabled.

All this will pave the way for the futures market to be more open to global traders, Yuan said.