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March 15 (Bloomberg) -- China’s securities watchdog issued draft guidelines for equity funds who want to trade index futures to regulate their investments, prevent risks and protect the interests of fund investors.

Equity funds should use index futures for hedging purposes and bond and currency funds are not allowed to trade the products, the China Securities Regulatory Commission said in the draft posted on the agency’s Web site today for public feedback.

Funds are not allowed to hold long positions worth more than 10 percent of their net asset value or short positions worth more than 20 percent of the value of the equities they hold at the end of daily trading, according to the draft.

Open-ended funds are banned from taking long positions and equity assets with a combined worth of more than 95 percent of their net asset value, and closed-end funds are prohibited from taking long positions and equity holdings worth more than their net asset value, the commission said.

Shang Fulin, chairman of the commission, said on March 5 the government may introduce stock-index futures in mid or late April.

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