China's futures industry will be opened further to allow for the launch of joint ventures on the mainland by qualified overseas financial institutions and let more domestic enterprises trade futures overseas for arbitrage under sound risk control, according to an industry regulator.

Fan Fuchun, vice-chairman of the China Securities and Regulatory Commission, the nation's futures and securities watchdog, said the authorities will also enhance investor protection by introducing a new deposit security scheme for futures investors within the year.

And a futures investor protection fund will be launched in order to offer reasonable compensation when investors' lawful interests are infringed.

Fan told a high-level futures forum in Beijing on Saturday that China needs an effective and secure futures market with a reasonable structure, diversified functions and increased participation from international investors.

This is vital in order to catch up with global economic trends and support domestic economic reform, Fan told the forum.

But the domestic futures market remains far from mature. A narrow product range and small trading scale have weakened its competitive edge.

He added that the global influence of the Chinese futures market remains limited as domestic financial institutions and overseas investors are still prohibited from trading futures locally.

More systematic reforms are required to change the situation, he said, adding that China will promote the opening of its futures market in an active but stable way.

As a first step, Hong Kong and Macao-registered investors will be allowed to buy into domestic futures companies as the mainland implements the Closer Economic Partnership Arrangement with the two regions, he said.

The maximum ratio of stocks these overseas investors can hold in the futures joint ventures will be 49 per cent, according to the arrangement.

And more qualified domestic enterprises will be allowed to trade futures overseas, although this trading will only be conducted for the sake of arbitrage in order to avoid risks in major price fluctuations in global markets, and strict internal risk controls must be guaranteed.

Innovation should be stepped up at the exchanges in order to widen the range of products in the domestic futures market. Special attention should be paid to new futures products in the agricultural sector and resource commodities with strategic economic importance. And more bulk commodities are expected to be traded in the futures market.

Zhengzhou Commodity Exchange President Wang Xianli said the exchange would prepare this year for the launch of sugar and rape-seed futures and wheat options and also develop new products for coal, natural gas, power and other industrial commodities.

Meanwhile, Shanghai Futures Exchange is developing petroleum futures and bronze options, while Dalian Commodity Exchange aims to trade in soy oil futures and soybean options.

The exchanges have also expressed an interest in developing financial futures like index and bond futures, but insiders said that may take more time to prepare.

China's futures market has experienced a strong recovery over the past few years, but it still lags far behind its overseas counterparts, said Cheng Siwei, vice-chairman of the Standing Committee of the National People's Congress, China's top legislature.

Legislation will be a crucial part of this process, he said, adding that laws and regulations in the futures sector should be improved, and updated standards should be introduced in order to discipline market participants, enhance competition and define the obligations of various parties.

Futures brokerages and enterprises that participate in trading should have a sound internal risk control mechanism and offer timely, truthful and sufficient information. The exchanges should improve their trading rules and contract design.

"The futures market has to guarantee the concrete protection of investors' interests, so law enforcement should be enhanced and law-breakers have to pay higher costs for their misbehaviour," Cheng said.

A major step taken by the regulators to better protect investors this year is the expected establishment of the new deposit security scheme, which will ensure the security of funds deposited by investors at futures brokerages or other traders.

Fan Fuchun from the CSRC said the new system will first take place as a pilot, and will be expanded nationwide within the year.

Regulators are also designing a futures investor protection fund, which, similar to the recently introduced insurance protection fund, will offer appropriate compensation to investors when their lawful interests are hurt.