China exchanges to see futures, margin trading
By Winny Wang |
January 9, 2010, Saturday
|
Print Edition
Print Edition
Moving to modernize its markets, the Chinese government has approved stock-index futures and, on a trial basis, margin trading and short-selling.
The changes are meant to give investors tools to hedge market risks and boost liquidity.
It will take about three months to complete preparations for the long-awaited launch of index futures, the China Securities Regulatory Commission said on its Website yesterday.
"The market will face restructuring after the launch of the two products, which will give a boost to blue chips such as banks but dampen smaller stocks," said Li Xunlei, an analyst at Guotai Jun'an Securities Co.
"The risk-hedging tools will help the market tame strong fluctuation but fuel small moves. They will also shore up liquidity and activate trading on the market," Li said.
Index futures are an agreement to buy or sell an index at a preset value on an agreed date. Often used as hedging tools, they allow an investor to make bets on the direction of an entire index rather than individual stocks.
China established its only financial futures exchange in 2006 in preparation for the debut of index futures, which will be based on the CSI 300 index that tracks the top 300 mainland-listed firms.
The exchange has finished contract design of the index, set up trading systems and launched education for investors, the regulator said.
But the introduction of index futures has been accompanied by concerns that the tool could destabilize the stock market.
The exchange said earlier that it will introduce strict entry requirements for investors to contain risk and prevent speculation, such as a 500,000-yuan (US$73,200) threshold.
"Index futures offers a new investment channel for investors to optimize their asset structure, but the product features high risks and is not suitable for individual investors," said Han Zhiguo, head of Beijing Banghe Fortune Research Institute.
The State Council, or China's cabinet, has also agreed to launch margin trading and short-selling on a trial basis, the CSRC said, without revealing a timetable.
"The government approved the two products at the same time to balance the market, as index futures is always seen as a negative signal for the market while margin trading is to boost the market," said Jiang Yingkun, an analyst at Guotai Jun'an Securities Co.
Margin trading lets brokers fund stock purchases by individual investors. Short sales allow retail investors to sell borrowed securities with an aim to buy them back later at lower prices to profit from the difference. They are expected to further shore up liquidity and allow investors to profit by betting on a market's drop.
The commission will select quality brokerages by size of net capital and risk control for a trial of margin trading and short-selling before expanding the program.
The changes are meant to give investors tools to hedge market risks and boost liquidity.
It will take about three months to complete preparations for the long-awaited launch of index futures, the China Securities Regulatory Commission said on its Website yesterday.
"The market will face restructuring after the launch of the two products, which will give a boost to blue chips such as banks but dampen smaller stocks," said Li Xunlei, an analyst at Guotai Jun'an Securities Co.
"The risk-hedging tools will help the market tame strong fluctuation but fuel small moves. They will also shore up liquidity and activate trading on the market," Li said.
Index futures are an agreement to buy or sell an index at a preset value on an agreed date. Often used as hedging tools, they allow an investor to make bets on the direction of an entire index rather than individual stocks.
China established its only financial futures exchange in 2006 in preparation for the debut of index futures, which will be based on the CSI 300 index that tracks the top 300 mainland-listed firms.
The exchange has finished contract design of the index, set up trading systems and launched education for investors, the regulator said.
But the introduction of index futures has been accompanied by concerns that the tool could destabilize the stock market.
The exchange said earlier that it will introduce strict entry requirements for investors to contain risk and prevent speculation, such as a 500,000-yuan (US$73,200) threshold.
"Index futures offers a new investment channel for investors to optimize their asset structure, but the product features high risks and is not suitable for individual investors," said Han Zhiguo, head of Beijing Banghe Fortune Research Institute.
The State Council, or China's cabinet, has also agreed to launch margin trading and short-selling on a trial basis, the CSRC said, without revealing a timetable.
"The government approved the two products at the same time to balance the market, as index futures is always seen as a negative signal for the market while margin trading is to boost the market," said Jiang Yingkun, an analyst at Guotai Jun'an Securities Co.
Margin trading lets brokers fund stock purchases by individual investors. Short sales allow retail investors to sell borrowed securities with an aim to buy them back later at lower prices to profit from the difference. They are expected to further shore up liquidity and allow investors to profit by betting on a market's drop.
The commission will select quality brokerages by size of net capital and risk control for a trial of margin trading and short-selling before expanding the program.
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