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The long road to index futures trading

By Wang Lan (China Daily)
Updated: 2007-07-04 11:32

The long-awaited debut of CSI300 index futures, the mainland's first financial futures product, is testing the patience of many market participants, particularly institutional stock investors who would welcome an effective hedging tool to help minimize looming risks in an increasingly uncertain market environment.

ButShanghai-based China Financial Futures Exchange insiders said the exchange and the government regulatory agencies insist on getting everything right before the launch.

As a result, much time and effort is being spent on the regulations that cover trading practices, participants' rights and obligations, risk management and clearing facilities. Finding a shortage of experienced financial futures traders, many prospective participants are conducting training courses for selected staff members.

Special coverage:
Markets Watch  

Related readings:
 Regulator approves index futures trading rules
 China may put off launch of stock index futures
 Index futures may shake up brokers

The preparation process is further complicated by the diversity of the participants, whose specific interests must be equally protected.

"The birth of stock index futures represents the transition of China's financial market, from the previously divided operations and supervisions in separated markets to an integrated financial system with coordinated efforts from all markets," said Yu Yiran, an analyst with China International Futures (Shanghai) Co Ltd.

In the past years, a number of key rules and regulations have been introduced to pave the way for the launch of the index futures market. The Regulation on Futures Trading, which came into effect in April, has effectively laid down the ground rules for all participants.

China Financial Futures Exchange (CFFEX) last week saidChina Securities Regulatory Commission(CSRC) has approved the trading rules and contract specifications for CSI300 futures. The approved rules cover trading practices, clearing procedures, members' rights and obligations, risk control, information management, hedging operations and investigation and penalties for irregular trading.

The approval of the trading rules and contract specifications is widely seen as having cleared one of the final hurdles in the long preparation process.

The assessment of members' qualifications is expected to be the next focus for CFFEX in the coming months. The exchange has said the approval of the trading rules and the contract specifications was a major boost to the preparation work, although the specific trading date for the index futures is yet to be fixed.

But industry experts pointed out that other supplementary rules and regulations will have to be added to form a complete legal system for the proposed market.

Before that happens, it's difficult for the prospective market participants, including broking firms, fund management companies, institutional investors and clearing banks, to make any real progress in their preparation work.


(For more biz stories, please visit Industry Updates)

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