On April 24, 2026, the China Securities Regulatory Commission (CSRC), in consultation with the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE), announced that Qualified Foreign Institutional Investors (QFIIs) and Renminbi Qualified Foreign Institutional Investors (RQFIIs) (collectively referred to as “QFIs”) can participate in CGB futures trading, with such trading limited to hedging purposes. The China Financial Futures Exchange (CFFEX) began accepting applications from QFIs for trading CGB futures on that same day.
In early May 2026, futures companies, QFI custodian banks and other QFI institutions attended CFFEX training sessions regarding the participation of QFIs in CGB futures trading. This article summarizes the key regulatory requirements and practical issues for QFIs’ participation in CGB futures trading, based on the current CFFEX rules and insights from these training sessions.
I. The Process for QFIs Participation in CGB Futures Trading
For offshore institutions that have not yet obtained QFI qualification, the process for participating in CGB futures trading consists of the following steps:
- Step 1: Apply for QFI qualification with the CSRC, with an investment plan covering CGB futures, through a custodian bank;
- Step 2: Sign a futures brokerage agreement with a futures company and open a futures trading account;
- Step 3: Apply for a hedging trading code with the CFFEX through the futures company;
- Step 4: Prepare hedging application materials and apply to the CFFEX for a CGB futures hedging quota through the futures company; and
- Step 5: Once the hedging quota is approved, the QFI may commence CGB futures trading on the next trading day.
Offshore institutions that already have a QFI qualification and with investment plans that cover CGB futures, do not need to reapply for QFI qualification or reopen bank accounts. They can apply directly for a CFFEX hedging trading code and a hedging quota through a futures company and begin trading once the quota is approved.
II. The Process for QFIs Application for CGB Futures Hedging Quota
Since the participation of QFIs in CGB futures is limited to hedging, QFIs should apply to the CFFEX for a hedging quota. According to the CFFEX’s hedging rules, QFIs shall submit application materials to the futures company with which they have opened an account; after a preliminary review, the futures company shall file the application with the CFFEX via the Member Service System; after formally accepting the application, the CFFEX shall provide a response within five trading days, for which any time spent on supplementary material submission shall be excluded from the five trading days.
The application materials include:
1. A CFFEX Application Information Form for a Hedging and Arbitrage Quota
2. A Hedging Plan
A hedging plan shall include, but not be limited to: a hedging trading strategy, the necessity and rationale of the quota required to manage risk exposure (with supporting materials), a calculation of the correlation between futures and the hedged underlying assets (including the calculation methods and parameters, etc.), the hedging effectiveness and an introduction to the investment team. For long hedging proposals, it shall also include the alternative investment plan, the proposed scale of the assets and the trading plan relating to the alternative plan.
3. Requirements on QFI’s CGB Positions
According to the CFFEX training, CGB assets held by an offshore institution through both the QFI channel and the CIBM Direct channel are, in principle, recognized as the CGB cash positions of that institution, but currently do not include CGB assets held through the Bond Connect regime. If an offshore institution holds CGB assets through both the QFI channel and the CIBM Direct channel, the asset certification shall be stamped by the custodian bank to certify that the positions under the bond/securities accounts belong to the same offshore investor. However, if the CGB assets are held by different affiliated entities within the same offshore group through the QFI channel and the CIBM Direct channel respectively, they cannot currently be aggregated and recognized as the CGB cash positions of the same entity. If an offshore investor currently holds CGB solely through the CIBM Direct channel but intends to use CGB futures for hedging, it still needs to apply separately for QFI qualification and open a futures trading account.
We believe that allowing QFIs to count CGB assets held through the CIBM Direct channel as recognized CGB cash positions when applying for hedging quotas reflects the regulators’ encouragement and support for offshore institutional investors to participate in the Chinese bond market through multiple channels. This will greatly facilitate existing offshore institutional investors’ investment in the Chinese bond market. However, exactly when offshore institutional investors’ investments in CGB through the Bond Connect regime will be permitted to access onshore CGB futures remains to be seen.
4. Proof that the QFI has incorporated CGB futures into its investment scope
It is noteworthy that the hedging quota approved by the CFFEX is valid for 12 months, effective from the next trading day following the date of approval. QFIs must apply for a new quota at least 10 working days before the existing quota expires. If a QFI applies for a quota for near-delivery month contracts, it must first (or simultaneously) apply for a hedging quota; the quota for near-delivery month contracts may not exceed the already approved hedging quota. QFIs shall apply for the near-delivery month contract quota during the period from the first trading day of the second month preceding the delivery month to the fifth trading day preceding the delivery month. This quota is effective from the trading day preceding the delivery month until the last trading day of the contract. If a QFI does not separately apply for a near-delivery month contract quota, the CFFEX will monitor positions based on the lower of the following two figures: “the client’s position after settlement on the second trading day preceding the delivery month” and “the position limit for the delivery month”.
III. Requirements for Hedging Trading
A QFI’s hedging position shall not exceed its approved hedging quota. For a single futures product, a QFI’s weekly trading volume in a single direction shall not, in principle, exceed twice its hedging quota for that product. The CFFEX has the authority to supervise and manage how QFIs utilize their hedging quotas, including periodically requesting QFIs to provide information regarding their cash and futures positions, as well as explanations regarding their compliance with hedging requirements, if needed. Depending on the market conditions and the specific circumstances of each QFI, the CFFEX also has the discretion to adjust a QFI’s hedging quota. If a QFI’s hedging position exceeds its corresponding asset-to-position ratio or exceeds its approved hedging quota, the CFFEX may require the QFI to make adjustments within a specific period and may even, in serious circumstances, take self-regulatory measures such as ordering the liquidation of positions within a prescribed time, forced liquidation, or adjusting or canceling the QFI’s hedging quota.
IV. Using Bonds as Margin
QFIs may submit cash or marketable securities (e.g., bonds) as margin to meet the margin requirements for futures trading. Currently, the scope of the marketable securities accepted by the CFFEX refers strictly to book-entry treasury bonds issued by the Ministry of Finance, excluding those that are about to mature (treasury bonds with one month or less to maturity cannot be used as margin). If an offshore institution holds treasury bonds solely through the CIBM Direct channel and intends to use those bonds as margin, it may, in accordance with the regulatory provisions, transfer the bonds to its QFI account through a non-trade transfer.
V. Offshore Institutions Trade CGB Futures Through Offshore TRS
Besides QFIs’ direct participation in CGB futures trading, some broker-type QFIs may also apply for CGB futures trading in their own names, based on their own assessments and provide total return swaps (TRS) or other products linked to CGB futures to their clients offshore.
During the training sessions, the CFFEX mentioned that if an offshore client participates solely in CGB futures trading, it is not required to submit a letter of undertaking stating that it is “not involved in structured product business, cross-border derivatives business of securities companies, or related hedging transactions”, when opening a futures account. Some institutions have interpreted this to mean that since no such undertaking is required for CGB futures trading, they may offer or trade derivatives linked to CGB futures offshore (e.g., offshore TRS transactions).
From a regulatory perspective, our interpretation is that the Chinese regulators encourage offshore institutions to participate directly in onshore CGB futures trading rather than indirectly through structures such as offshore TRS. Within the overall regulatory framework of the Derivative Trading Administrative Measures (Interim), regulators may further strengthen the see-through supervision of cross-border derivatives transactions through cross-border regulatory cooperation. Before such see-through supervision in a cross-border context is fully implemented, offshore TRS structures still give rise to regulatory concerns regarding transparency and the potential circumvention of regulations. Therefore, offshore institutions that are already participating or planning to participate in offshore TRS, or similar products linked to CGB futures, are advised to conduct a comprehensive compliance assessment based on their own strategies. At this stage, since the regulators have not yet clarified the specific requirements for hedging and information disclosure under TRS structures, we recommend that parties proceed with caution and make timely adjustments in response to changing market conditions and regulatory policies to avoid potential compliance risks.
