(Yicai Global) July 2 -- The China Banking and Insurance Regulatory Commission issued regulations yesterday that allow insurance funds to be invested in treasury bond futures, thus granting institutional investors access to the treasury market to equip them with more risk hedging tools, but the new rules bar use of Treasury futures to speculate.

Insurance funds will invest through hedging, which means taking an offsetting position in the futures market against the spot market to lock in the forward value, to make assets prices less sensitive to interest rates change.

Insurers wading into Treasury bond futures may bring in up to CNY110.8 billion (USD15.69 billion), CITIC estimates, news portal Caixin Global reported.

The net value of government bond futures contracts an insurance investor holds at the end of any given trading day cannot exceed 20 percent of its total assets at the close of the previous quarter, per the document the CBIRC issued to selected insurers on June 23.

Commercial banks and insurance funds are key institutional investors in the Treasury spot market and are highly sensitive to interest rate changes. Interest rate risk management needs thus become ever more urgent as China promotes interest rate marketization reforms and amid the burgeoning assets of financial institutions, which previously lacked effective hedging tools against interest rate risks, so the clamor to open these two types of institutions to Treasury futures has been strident in recent years.

The regulator has drawn up differing regulations on self-investments, investment trusts and chosen futures companies to set thresholds for investment in the bond futures. An insurer that invests on its own must have at least five professionals for asset allocation and investment trading, at least three for risk management, and at least two for settlement and accounting. This requirement also applies to insurance asset trust management and other specialty management institutions.

The rules lower the bar for investment trusts, requiring only at least two professional insurance companies, including risk control personnel.

Editor: Ben Armour