Trial option trading to boost market
Print Edition
CHINA will allow a trial for option trading as a way to boost market vitality and enable investors to hedge risks.
The trial trading will use selected stocks and exchange-traded funds as underlying equities, the Shanghai Stock Exchange said in a draft rule released over the weekend.
An option is a contract that gives the owner the right to buy or sell an underlying asset at a specified strike price on a predetermined date in the future. It allows investors to mitigate risks of price fluctuations.
The draft set out requirements on underlying assets, contract content, trading rules, as well as circuit breaks mechanism.
Individual investors with assets worth over 500,000 yuan (US$81,000) and experienced in trading stocks or financial futures can participate in option trading, the exchange said.
“The launch of options will increase market holdings of underlying assets and thus boost transaction activity,” CITIC Securities said in a note yesterday.
The brokerage said the regulator would first introduce ETF-based options before unveiling stock-based or stock index-based options to avoid market turbulence.
Local media reported the exchange plans to launch option on ETF50 on January 28.
“Trading of ETF options will boost vitality of blue-chip shares, but it will also increase speculative activities and thus lead to volatility in the A-share market,” CITIC said.
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