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The long road to index futures trading
By Wang Lan
Updated: 2007-07-04 07:01
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.
But Shanghai-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.
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 said China 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.
"We just can't speed things up within our organization before all the
relevant rules are put in place," said Yu.
TCSRC on June 22 said it began the process of vetting futures brokerage
companies that have applied for approval to conduct clearing business.
The securities watchdog also started the qualification assessment of
securities companies for IB, or introducing broker, business. IB enables
an approved stock brokerage companies to earn commissions by introducing
clients to futures trading through futures brokerages.
The futures market is also facing a shortage of industry professionals.
This year, the total number of those who have cleared the futures
employee qualification examination rose 26 percent from last year to
36,165, according to statistics from China Futures Association.
The frequency of such examinations has been increased to three times a
year. Before last year, it was held once or twice a year.
Many futures employees in China, despite having gained expertise in the
commodity futures markets, have very limited knowledge of the financial
futures market.
Educating investors is also a key factor in preparing for index futures.
In 2006 alone, China Futures Association hosted 37 seminars on financial
futures for individual investors.
In the past two years, the association has organized 20 lectures aimed at
institutional investors. Alongside hundreds of lectures by the
association and futures companies, investor education has also been
conducted in other forms.
The simulated trading of CSI300 futures, started in October, is widely
considered invaluable in providing a lifelike market experience to
participants.
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