UBS AG, which holds the largest investment quota of $800 million under the Qualified Foreign Institutional Investor (QFII) system in China, said yesterday it would trade China's new stock index futures.

"Regulations have made it clear that QFIIs will be allowed to take part in index futures by putting up a certain portion of their QFII quota and we hope to participate in the new financial tool to manage risks," said Nicole Yuen, head of China Equities at Switzerland-based UBS in Shanghai.

The China Securities Regulatory Commission (CSRC) approved trade in stock index futures - which may take three months to set up - in an aim to broaden investment options on the world's second-largest equities market by market value.

But the regulator didn't release details on who will be allowed to trade the new products.

The government also approved margin trading and short selling the same day, as investors seek to profit from declines in shares.

"I suspect it will probably be a little while before QFIIs can do so as detailed rules haven't yet come out for them," said Hubert Tse, managing director of international business at Yuan Tai, a Shanghai law firm.

"Chinese securities firms are expected to get the go-ahead first before QFIIs," he said.

As part of a pilot program, large securities houses like CITIC Securities, Haitong Securities and Guotai Junan Securities are likely to become the first firms to trade stock index futures, according to China Business News reports.

Tse pointed out that QFIIs are keen on trading stock index futures in the near future to benefit their Chinese A-share investments.