SHANGHAI: The China Financial
Futures Exchange (CFFEX), the mainland's first exchange specializing in
derivatives trading, was officially inaugurated in Shanghai on Friday.
The inauguration came ahead of schedule, pushed by overseas exchanges
launching derivative products based on Chinese stocks and currency to meet the
growing hedging needs of investors.
The Singapore Stock Exchange, Asia's third-largest stock exchange, launched
trading in index futures based on China's mainland-listed stocks on September 5,
while on August 27 the Chicago Mercantile Exchange, the biggest US futures
market, began trading futures and options on the yuan.
"Establishment of the CFFEX is a challenging innovation," said Vice-Chairman
of the China Securities Regulatory Commision (CSRC) Fan Fuchun at the
inauguration ceremony.
As part of the capital market reform, China has in the past two years
introduced trading in a few financial derivative products such as currency
swaps, interest-rate swaps, bond forwards and stock warrants.
The first product to start trading at the newly set up CFFEX will be stock
index futures. But it will take months of testing before it can be launched.
Other products to be launched in the near future at the new exchange include
bonds futures and stock index options, said industry sources.
The CFFEX has been set up as a joint-stock company with ownership equally
shared between the Shanghai Futures Exchange, Shanghai Stock Exchange, Shenzhen
Stock Exchange, Dalian Commodity Exchange and Zhengzhou Commodity Exchange, said
Jiang Yang, assistant chairman of the CSRC, at the inauguration ceremony.
In comparison, the other five exchanges are non-incorporated institutions
based on membership.
The registered capital of the CFFEX is 500 million yuan (US$62.5 million),
equally shared by the five stockholders. The new exchange is temporarily located
inside the existing Shanghai Futures Exchange.
The former general manager of the Dalian Commodity Exchange and current
president of the China Futures Association Zhu Yuchen is being considered to
head the CFFEX, the China Securities News reported.
The launch of trading in stock index futures, which entails a mechanism for
short selling stocks, will fundamentally change China's stock market, said
analysts.
Short selling the sale of borrowed securities in anticipation of a fall in
price before delivery from which profits can be generated has hardly been
allowed in China's 16-year-old stock market due to fears of rampant speculation.
"The trading in stock index futures will significantly enhance the presence
of institutional investors in China's stock market and will help absorb
excessive market liquidity," said Dang Jian, general manager of the China
International Futures (Shanghai) Co.
Trading in stock index futures will also facilitate co-operation between
China's futures companies and securities firms, leading to financial-service
conglomerates as found in developed markets, said Dang.
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