China's new rules on futures target big investors

Discussion in 'Index Futures' started by ASusilovic, Jun 29, 2007.

  1. BEIJING, June 29 -- China's new rules on trading stock-index futures will limit the derivatives to institutions at the initial stage, and turnover won't be heavy enough to significantly affect the stock market, industry analysts said on Thursday.

    Market observers also noted that blue chips may be spotlighted in the debut of the index futures, which will be based on a gauge tracking the top 300 Chinese mainland public firms.

    The China Financial Futures Exchange late on Wednesday unveiled detailed regulations on trade in index futures, setting the stage for the derivative's launch, which is widely expected in the next few months.

    The rules stipulated that the value of a futures contract will be equivalent to the points of the CSI 300 Index multiplied by 300 yuan (US$39). Investors must put up 10 percent of a contract's value as a margin.

    Based on yesterday's close of 3,858.52 on the CSI 300 gauge, a single index futures contract would be valued at 1.16 million yuan, which means that an investor must put up 115,756 yuan to trade a contract.

    High values

    "The high value of the contract will make it hard for retail investors to participate, and I believe turnover among institutions won't be heavy during the first days of trading," said Xu Huiming, a China Securities Co dealer. "So the real impact on the stock market will be limited, except for some psychological influence."

    China's mainland stock market has yet to adopt a short-selling system, which means investors can profit only when they buy low and sell high.

    Analysts said some less-savvy investors link futures to speculation or used news of the derivative's launch as an excuse to sell and pocket earlier gains. The benchmark Shanghai Composite Index lost 4.03 percent yesterday while the CSI 300 index eased 4.5 percent.

    "The market overreacted a bit yesterday, and I expect the CSI index to recover in the following days," said Lu Chengde, a Guosen Securities Co trader.

    Under the plan, the financial futures bourse will initially trade four types of index-futures contracts, which will be settled each calendar month, the following month and the next two quarters.

    (Source: Shanghai Daily)