FiNETIK – Asia and Latin America – Market News Network

Asia and Latin America News Network focusing on Financial Markets, Energy, Environment, Commodity and Risk, Trading and Data Management

Trading China: Highlights from SunGard City Day Beijing

China, the world’s second largest and fastest growing economy, is in the midst of unprecedented change. That is particularly true for capital markets as regulations, business models and trading technologies evolve at a high pace.

Industry leaders and technology experts gathered at SunGard’s Beijing City Day in June to discuss some of the key trends in electronic trading, and we bring you below the best of these discussions – enjoy the read!

Opportunities and Challenges of QFII   Participating in China Stock Index Futures The opening of China’s stock markets to foreign investors offers unprecedented trading opportunities. But Qualified Foreign Institutional Investors (QFII) have to consider many aspects before investing in China’s Stock Index Futures: high systematic risk, defective policy, language and technology hurdles. Nanhua Futures’s Zhang Yiwei explores the challenges and opportunities.

Using complex event processing for algorithmic trading Complex Event Processing (CEP) has been labeled as the next revolution in trading technology and is already a prominent fixture in many investment banks, hedge funds, broker/dealers and exchanges. But how justified is its revolutionary status? And what exactly are the benefits that CEP provides? SunGard’s Benjamin Becar explains it all.

Market Data and China:  Meeting the Needs of the Growing Investor Community Providing investors with low latency market data that is cost-effective, requires minimal infrastructure and provides real-time financial information from liquidity points in the global marketplace are top priorities for market data managers in China. SunGard’s Peter Raftell shares lessons learnt from US and Europe.

Source: SunGard, 12.07.2011

Filed under: Asia, China, Events, Market Data, News, , , , , , , , , , ,

2010 Top 10 Developments in Asia’s Electronic Trading Industry;Asia E-Trading

2010 was the year that Asia’s electronic trading industry focused on competition and services in what have traditionally been anti-competitive market places. We recorded over 1000 separate news items this year in Asia alone. We recognize that some of the developments that made our list will not be relevant to everyone but as a neutral third party observer we have come up with a list that we feel are the Top 10 Developments in Asia’s Electronic Trading Industry in 2010.

Original Article: Asia E-Trading 2010 Top Developments

10) The US CFTC now allows Malaysian futures brokers to deal directly with US customer. Perhaps individually not a Top 10 item as other brokers in Asia have been given the nod by the US regulator too. But when taken together with the recent Bursa Malaysia exchange technology upgrades in both the equity and futures segments, migration to the CME Globex platform and the record prices in the Crude Palm Oil contract Malaysia is now poised to take its place as a south-east Asian trading center. It will become a key anchor in the ASEAN link planned in the coming years.

9) China’s Index future launched April 16 after many years of delay was an important development not only for electronic trading but also for China’s budding algorithmic and hedge fund industry. The index has quickly become one of the largest index futures now traded in Asia. Though the back month doesn’t trade as much as it should it will only be a matter of time before that open interest picks up too. It shouldn’t be long before we see index options and an interest rate future for China as well.

8 ) Singapore Mercantile Exchange launched in late August this year. Asia is demanding more and more commodities as wealth and consumption grow around the zone. Generally, in Asia, commodity exchanges tend to offer just one product but the Singapore Merc is offering a basket of commodities to trade both physical and cash contracts. Trading is available in WTI crude, currency, gold and black pepper to name a few. Interestingly, though, is that the SMX is owned entirely by Financial Technologies Group (FTIL) an India based company that will see its exchange compete head on with SICOM, the SGXs commodities arm. Expect to hear more from the SMX this year.

7) The Japan Securities Clearing Corporation (JSCC) began clearing trades for Proprietary Trading Systems (PTS) in August substantially reducing the costs in the post trade for alternatives in Japan. While the playing field still isn’t level with the Primary exchanges, this development at the JSCC was a boost for Japanese PTSs. SBI Japannext, a consortium PTS, has regularly traded 1 percent of daily volume on its venue as a result of this change. We expect fragmentation to accelerate in 2011 in Japan which is already around 3 to 5%.

6) The launch of Chi-east. The joint venture between the Singapore Exchange and Chi-X called Chi-east made it to our list of top 10 developments in Asia electronic trading industry in 2010. The venture is a big step for Singapore in terms of spurring exchange competition and becoming a regional one-stop-shop for trading in Asia. Chi-East is a broker to broker alternative that will offer off-shore crossing using different clearing facilities around Asia.

5) China is now the largest agricultural commodity market in the world with the Dalian Commodity Exchange seeing record volumes in Corn and the Soybean complex. Coupled with the Shanghai Futures Exchange and its metal products the opportunities and future for the electronic trading industry vertical in China and the rest of the world are huge.

4) Exchange competition in Australia. On March 31 the Australian government announced its support for Exchange competition in Australia. While we are still waiting the promise of competition is compelling. The Australian Securities Exchange (ASX) has long held a monopoly over the industry with poor service and high trading fees (explicit and implicit). The ASX passed its supervisory duties to the Australian Securities and Investments Commission (ASIC) August 1 and with the Market Integrity Rules being finalized it shouldn’t be long before trading in Australia is much cheaper and better served. The ASX SGX merger could put a spanner in the works, however.

3) Smart Order Routing in India – SEBI finally permitted Smart Order Routing in India in August of this year much to the National Stock Exchanges chagrin. The Bombay Stock Exchange promptly offered this service to its customers in a bid to take market share from its larger rival. India has the tightest spreads in Asia of around 6bps and with SORs on offer we can expect spreads to tighten even further and volumes to shoot up. This long overdue regulation puts India on the road to offering best execution far ahead of its BRIC peer China. Deutesche equities was the first FII to receive approval for using SORs to both the NSE and BSE.

2) SGX / ASX Merger – We have seen it in the US and Europe and it has finally come to Asia, exchange consolidation. While the news of this reverberated around the world like a tsunami the reality, in AsiaEtrading’s view, is that this is a merger of survival. Both exchanges are very small and in aggregate are still quite small but would command the largest futures market in Asia (not including China’s commodities of course). The announcement is further evidence that Asia is moving to a more competitive industry and should be a wake-up call to the rest of the region. Our webinar on the topic had the panelists agreeing that the merger won’t happen. We’ll wait and see if this merger does indeed take place.

1) We ranked the Tokyo Stock Exchange Arrowhead upgrade as the most important development in Asia’s Electronic Trading industry in 2010. This was a significant and crucial development for one of the top exchanges in the world. Previously, order round trips were around 4 seconds and orders per second were on par with a Starbucks barista. The improved matching engine performance has tightened spreads, increased trading volumes and reduced order sizes. This in turn has attracted more sophisticated traders, reduced implicit trading costs and has generally benefited the Japanese trading industry significantly. Not only that, having come out of 2009 and the aftermath of the GFC, the successful upgrade was the turning point for what was a very activity business in 2010. To us it was the catalyst for the entire industry in Asia.

Source: http://www.asiaetrading.com, 02.01.2011

Filed under: Australia, China, Exchanges, Hong Kong, India, Japan, Malaysia, News, Singapore, Trading Technology, , , , , , , , , , , , , , , , ,

Asia E-Trading: Electronic Trading in China – Webinar September 7th

Asia E Trading presents the free  1 hour web-seminar : Electronic Trading in China

  • Overview of the Electronic Trading industry
  • Buy-side Algorithmic Trading
  • CSI300 Index future
  • Latest news on QFII and QDII
  • High Frequency Trading and Colocation
  • Update: Shanghai and Shenzhen Exchange

Speakers are:

Lionel Sancenot – Sungard- MD NE Asia & Greater China

Bill LiuQing Ma Investments -Portfolio Manager

Zennon Kapron – KapronAsia- Principal

REGISTER HERE

Date: 07. September 2010

TIME: 5pm Hong Kong, 10am London, 5am New York

The seminar will be recorded and available on demand

Filed under: China, Exchanges, FIX Connectivity, Trading Technology, , , , , , , , , , , , , , , ,

China CFFEX Index futures’ gains signal improved market sentiment

Gains in China’s stock index futures may be a signal market sentiment has started to improve as investors’ fears about further credit-tightening ease, Monday’s China Daily quoted analysts as saying.
“The rise in the index futures indicates an improved market sentiment over the long run as investor’s concerns of further policy tightening may have eased,” the newspaper quoted Yang Cui, an analyst at Changjiang Securities, as saying.

The June contract, the most actively traded, gained 1.44 percent last Friday to close at  2,801 points, the paper said, adding that the settlement of the May contract was smooth and without sharp declines or volatility in the spot market.

Market watchers remain bullish on Chinese equities in the medium to long term, despite the recent tumble in the benchmark Shanghai Composite Index that was triggered by stern government measures to cool the property market.

“We are medium-term bullish about the A-share market for the next six to nine months,” said Jan G. Loeys, chief strategist at JP Morgan. He is positive about emerging Asian shares, in spite of the policy tightening in China that created nervousness.

About 20,000 investors have participated in index futures trade and daily turnover is 8.1 billion yuan, according to the China Financial Futures Exchange.

Source: CITIC, 24.05.2010 by Haisn Liang

Filed under: Asia, China, Exchanges, News, , , , ,

CSRC outlines how funds can invest in CSI 300 futures

The regulator releases an early draft of the proposed rules for Chinese mutual funds that want to invest in CSI 300 index futures.

s fund analysts and managers continue to attend futures training courses organised by the China Securities Regulatory Commission, a draft of the CSRC’s proposed rules on how Chinese mutual funds can invest in the upcoming CSI 300 index futures hit the industry’s email inboxes earlier this week.

The regulator is encouraging discussion in the industry; it wants the public to provide feedback on the rules by this coming Monday, March 22.

A first glance through the five-page draft seen by AsianInvestor suggests the rules look straightforward, and its broad strokes read largely the same — both in language and spirit — to the rules for futures investing by fund managers in Taiwan. (This doesn’t come as a surprise; the regulations governing mutual-fund investments in securities, which went into effect in China in 2004, were also modelled after those in Taiwan.)

In the draft, the CSRC does not go into detail on how managers will qualify for futures-investing status. Fund houses, instead, are advised to review their fund prospectuses and contracts agreed with investors back at the fundraising stage and decide for themselves whether futures investing would meet their initial investment objective and risk exposure level as promised to investors.

For the fund industry, use of futures for the purpose of return enhancement is not permitted. The CSRC says the purpose of any fund activities in the futures market should be risk management.

The futures instruments for fund investment must be approved by and listed on China’s securities exchanges, and based on indices tracking only equity prices. (So notions of funds participating in bond futures or pretty much any other type of derivative would be futile at this stage.)

There are 559 mutual funds known to exist in China, according to the latest fund-registrar data tracking numbers published at the end of January. A quick search using the word ‘futures’ in Chinese in a fund database yields only 29 hits, in which ‘futures’ are specifically mentioned in the fund contracts or prospectuses as acceptable instruments for use by these funds.

Should these managers be willing to take up the challenge, they will theoretically be the initial 29 participants able to actually short A-shares domestically in China. (And there are 11 onshore brokerages authorised to serve them.)

Equity funds, balanced funds and principal-protected funds appear largely free to allocate to the CSRC’s approved list of futures instruments. The regulator thus far has made no mention on what it intends to do about segregated accounts and multi-client segregated-accounts, which went live in 2008 and 2009 respectively.

There will be limits on the holdings of futures by close-ended funds, open-ended index funds and exchange-traded funds. At the end of any given trading day, total value of securities held plus futures may not exceed 100% of a fund’s NAV — in short, leverage will not be permitted for these funds.

For open-ended funds, managers will be allowed to hold futures with a total outstanding value that exceeds 10% of the fund’s daily AUM at market closing. Net turnover of equity futures trading in a fund cannot exceed 20% of a fund’s NAV.

At the end of any given trading day, the total value of futures positions plus the value of the securities held in an open-ended fund may not exceed 95% of the fund’s NAV — with ‘securities’ defined as equities, bonds, options, asset-backed securities and repo instruments. Five percent of the fund’s assets must be allocated to liquidity instruments with maturities no longer than the equivalent of one-year government bonds.

Mindful that the funds industry at large is still poring over lecture notes and textbooks this month and that most firms have not yet hired the required techies for back-end support, the CSRC is advising caution and proper understanding; all participants should be adequately prepared before they enter the futures market. The CSRC wants fund houses to set up specific departments covering futures strategies and investments.

Other stakeholders, including guarantors to the ‘principal-protected’ funds (China’s version of CPPIs), are advised to get actively involved and aware of the potential value-at-risk for the funds they have given guarantee to; and that there should be sufficient assets to cover the principal-protected funds promised to investors should any potential losses occur.

Custodian banks are advised to review their own adequacy and strategies accordingly and develop risk-management and technological teams and platforms to support this development.

In earlier interviews with AsianInvestor, fund-rating agencies, including Morningstar and Lipper, have already taken a dim view of the opening moves that mutual fund houses will be able to make. Aside from the anticipated volatility to come, both predict a conservative and difficult early period, in which fund houses will be constrained by a lack of experienced staff and technical knowledge to draw on — for what is supposedly one of the most important chapters in the recent history of capital-market developments in China.

Nonetheless, for now, unregulated private funds, foreign investors with access to A-share markets and high-net-worth clients, and the 11 brokerages authorised to trade futures, are expected to be the largest beneficiaries.

For foreign players, though, CSI 300 futures will just be something to add to the toolbox. Overseas funds have long been able to express their views on A-shares using FTSE Xinhua A50 futures available in Hong Kong or Singapore.

Source:AsianInvestor.net, 18.03.2010 by By Liz Mak

Filed under: China, Exchanges, News, , , , , , , , , , , , , , ,

China: CSRC sets outs rules on CSI 300 margin trading

China’s top securities regulator on Friday unveiled regulations on the pilot programs for the soon to be launched margin trading and short selling business.

Securities firms must have at least 5 billion yuan in net assets and be rated as A-class in order to be qualified for the business. The regulator also required securities firms to have sufficient capital holdings and stocks of their own and have completed test runs of the trading network in order to conduct the business.

“We will gradually loosen the requirements and expand the pilot programs to more securities firms after the first batch of selected firms achieve successful results,” said an official from the China Securities Regulatory Commission (CSRC).

The regulator also asked qualified securities firms to choose clients carefully based on the review of their financial status, trading experience and risk preference. The purpose is to restrict investors with low risk tolerance and insufficient trading experience from the business, the CSRC official said.

In 2008, the CSRC picked 11 top brokerages for test runs of the trading network, including CITIC Securities, Haitong Securities, Guotai Junan, Shenyin Wanguo and Everbright Securities. It was reported that the CSRC would pick six to seven domestic brokerages from the 11 candidates for the initial phase of the trial program.

The CSRC did not reveal what stocks would be the target for margin trading and short Margin trading and short selling will allow investors to borrow money to buy securities or borrow securities to sell.

Once launched, the business is expected to account for 15 to 20 percent of the securities industry’s revenue, analysts said.

Source: http://www.sina.com/Citic-NewEdge, 26.01.2010

Filed under: China, Energy & Environment, Exchanges, News, Risk Management, Trading Technology, , , , , , , , ,

China braces for index futures; Fund experts sceptical about Chinese firms managing futures

China’s fund managers may get some nasty surprises once the newly approved stock index futures market finally kicks off. The main worries are a lack of expertise and limited investment in risk management.


China seems set on delivering market shocks at the turn of a new decade. Not only has it decided to rein in excess liquidity by raising bank reserve rates, it has finally announced its plan to develop stock index futures, after years of delay. (No doubt held back by some of the failed experiments with bond futures in the 1990s.)

On the upside, the general belief is that investors should benefit from enhanced transparency, deeper market development, product enhancement, and so on. This long-standing list was set out by market observers and foreign experts years ago. There’s no need to repeat it all here.

However, the is less consensus from consultants and fund-rating agencies on how stock index futures will affect the fund management sector. Analysts and research heads at Morningstar, Lipper and Z-Ben Advisors appear unconvinced about the ability of Chinese firms to manage these instruments.

Not that fund managers are authorised to join this new development yet. For now, only 11 authorised brokerages that have been approved to participate in the pilot schemes to trade the contracts have the qualifications to do so.

These 11 firms will only be able to express market views at an index level for the CSI 300 index. They aren’t likely to be able to do much at the individual stock level. Indeed, regulators have said little about the actual schedule of the futures market’s development.

The question then arises: If only vanilla instruments are available, will the futures market lead to product diversification for Chinese fund managers now trapped in the strait-jacket of a plain-vanilla world?

Maybe. Li Haiqing, fund analyst at fund-rating agency Morningstar in Shenzhen, says some primitive form of 130/30 strategies is likely to emerge in China. But that will happen first among the private funds that are not regulated by the securities regulator or are under the radar of the State Council’s strategic plans — not among the fund management houses. (Long/shorts, serious forms of arbitrage strategies, are something much further down the road.)

The best fund managers in China work for private houses these days, not mutual fund managers. Because they are not regulated, they are able to put together more flexible products. And they have the support of high-net-worth customers, who can take higher risks and have deeper pockets to support investments in trading platforms and risk management expertise.

The scene at mutual fund houses, meanwhile, is at best uneven. Xav Feng, head of research for China and Taiwan at fund-rating agency Lipper, reckons most fund houses have done “studies” on the new-fangled ideas of hedging tools. More are working their way up the learning curve, and most are simply not ready.

The lack of experienced people who can even understand the risks is a big worry. Talent supply simply to deliver good results from plain-vanilla securities is stretched, let alone expertise in innovative instruments.

Among the industry’s 10 oldest mutual fund houses, for example, only three can claim to employ the local asset management industry’s longest-serving fund managers. China Asset Management Company has Fang Jun, who served as a portfolio manager at China AMC for some five years and Han Huiyong for around six years. Shanghai’s Hua An boasts Shang Jimin, who can claim a little over six years of experience. Harvest has Shao Jian, with close to six years.

There’s an increasingly common polarised structure at these older firms, with a handful of senior managers at the top and a base of young managers with short track records. Hua An may have Shang Jimin, but other than Shang, there is a long list of individuals with experience ranging from around 20 days to little more than a year.

Similarly, at Shenzhen’s China Southern, at the top there is Chen Jian, with nearly four years under his belt, and below him a group of managers, each with one to two years of experience.

“There is a long way to go,” Lipper’s Feng says. Apart from the talent factor, more importantly “there needs to be enough liquidity for index futures. If not, it would be a disaster for fund managers”. Both Feng and Morningstar’s Li reckon the underlying support of margin provisions — the availability to secure leverage — is key to the success of index futures.

As per usual in China, big securities reforms make great promises for the long term. In the short term, the picture lacks clarity and can be worrying.

“Index futures will increase the volatility of the Chinese market in the short term, because investors are not familiar with it,” Feng says. But the market shock likely to come from the launch of futures might just be a stimulus for managers to strengthen their risk management techniques for the longer haul.

At present, Chinese mutual funds’ risk exposure is overwhelmingly centred towards equity risk premium. Over the long term, theoretically, they would do better to diversify to other sources of risks — for example, through credit, liquidity and manager skill.

Yet the reality is that managers have little business in asset classes beyond equities, which is their bread and butter, and managers are mostly unable to deliver returns purely through skill (the fabled search for alpha) that are uncorrelated from market exposure (beta).

Their only current means of managing risk is through asset allocation — managers could sell equities and park their proceeds in cash, bonds or cash-equivalent instruments. (For that reason, overseas investors — or reporters — questioning Chinese managers about their risk management practices often proves futile.)

Stock index futures should help change that.

Zhang Haochuan, analyst at industry research house Z-Ben Advisors, has seen little movement in the hiring of professionals or in the investment in trading platforms specifically in preparation for stock index futures or margin trading.

AsianInvestor sources suggest Beijing-based Harvest and China AMC, Guangzhou-based E-fund and even Shanghai-based Hua An might have been the early movers. These firms have been trying hard to recruit quantitative risk management talent in Hong Kong in recent months, albeit sporadically.

Zhang says larger firms that have been caught in CSI 300 index fund launches over the past year will have more incentive and resources to mobilise suitable expertise.

There are 16 CSI 300 (largely identical) index funds on the market now. Two of these are enhanced products with built-in leverage.

As an unintended result of their multi-billion-renminbi launches last year, these 16 houses have more skin in the game than the rest of the industry. China AMC’s CSI 300 product, for example, raised Rmb20 billion ($2.93 billion) in July. It is their business to start paying attention to these new concepts of securities innovation and risk management.

Source: AsianInvestor.net, 15.10.2010

Filed under: Asia, China, Exchanges, News, Risk Management, Trading Technology, , , , , , , , , , , , , ,

China Index Futures get Regulatory approval

The government on Friday gave the green light for stock index futures, margin trading and short selling in a milestone move that ends the one-way trade in the capital market.

An official with the China Securities Regulatory Commission (CSRC) said on Friday that the State Council has approved stock index futures, short selling and margin trading “in principle”. The regulator said it would take three months to complete preparations for index futures.

The new tools would protect investors against losses and also help them to profit from any declines. Until now, Chinese investors could only profit from gains in equities.  Analysts said the announcements are unlikely to cause any sharp volatility in the A-share market next week as the rumors have already been factored in.  “The market is unlikely to see huge fluctuations next week as the introduction of new financial tools has been discussed for years,” said Zhang Qi, an analyst with Haitong Securities.
Index futures are essentially agreements to buy or sell an index at a preset value on an agreed date. Investors can also borrow money to buy securities or borrow securities to sell under the business of margin trading and short selling.

Zhang said the move would be positive for blue-chips and heavyweight stocks as the contract would be initially based on China’s CSI 300 Index that tracks the 300 biggest shares traded in Shanghai and Shenzhen.

“Index futures are expected to bolster the market value of blue-chips,” he said.  Large listed securities firms such as CITIC Securities and Haitong Securities will also
directly benefit from the new business and could see a surge in their revenues, Zhang said.  Analysts expect the new tools to improve liquidity by attracting more capital into the equity market as the government plans to cut back bank lending to 7.5 trillion yuan ($1.1 trillion) in 2010 from last year’s 9.21 trillion yuan.

China’s securities regulator has been considering the introduction of index futures since 2006 when Shanghai set up the China Financial Futures Exchange to prepare for the running of the new mechanism. The plan had been held up till now along with the proposals for margin trading and short selling.

In 2007, CSRC chairman Shang Fulin said that the infrastructure and regulations needed for index futures and margin trading are in place.  Institutional investors are expected to be the mainstay of the new business as the threshold is high for retail investors who are more vulnerable to potential risks, said analysts.

It is estimated that the trading of stock index futures will take about three months to set up. Investors will need to deposit a minimum of 500,000 yuan in order to open an account to trade in stock index futures.

China will select high-quality brokerages to launch the short selling and margin trading of stocks on a trial basis.

Source: Sohu.com/CITIC NewEdge, 08.01.2010 by Liang Haisan

Filed under: Asia, China, Exchanges, News, Risk Management, , , , , , , , , , , ,

China still has no timetable for the launch of stock index futures CFFE

China still has no timetable for the launch of stock index futures, Zhu Yuchen, general manager of China Financial Futures Exchange, and also a member of National People’s Congress (NPC), said on Sunday.

“The financial crisis hinders the launch of stock index futures, but I hope it could come out as soon as possible,” Zhu was quoted by China News Agency as saying. The stock index futures are expected to be a stabilizer for China’s stock market.

Source: www.sohu.com, CITIC Calyon , Liang Haisan 10.03.2009

Filed under: China, Exchanges, News, , , , ,

China: CSRC to oversee Index Futures Market in 2009

The China Securities Regulatory Commission (CSRC) has obtained approval to establish a specialized department to supervise the business operation of and trading by brokerages and traders in futures contracts.
The move is widely seen as an essential step in the introduction of the long-awaited index futures trading.
This new department is expected to focus on overseeing institutional participants in futures markets, including domestic brokers and the Chinese units of foreign institutional investors.
Sources close to the situation said the new department would be given the priority to supervise institutional participants in the trading of index futures when it is introduced.
Some traders and analysts said the establishment of the new department would help shoulder some functions of the existing futures supervising arm under the CSRC, which would then focus on regulatory matters.
Before the start of financial futures trading, the proposed new department is expected to keep a close watch on issues relating to risk control by futures brokerages in offering innovative services to clients.

Source: http://www.sohu.com, CITIC Calyon Futures, Liang Haisan 11.12.2008

Filed under: China, Exchanges, News, , , , , , , , ,

China Allows Short Sales, Margin Loans to Help Market

China’s cabinet agreed to let investors buy shares on credit and sell borrowed stock to help develop Asia’s second-largest market after prices and trading volumes slumped, an official familiar with the plan said.

The State Council signed off on a China Securities Regulatory Commission plan submitted this month to allow margin lending and short selling, said the official, who declined to be identified as he isn’t authorized to speak on the issue.

China’s action contrasts with regulators in the U.S., Europe and Australia that have banned short selling in the past week to shore up financial shares battered by the global credit squeeze. China’s government is betting the changes will boost trading without spurring further declines after state share buybacks helped the CSI 300 Index rebound from a two-year low.

“It’s quite positive for the market and will help attract fresh capital into equities,” said Wu Kan, a fund manager in Shanghai at Dazhong Insurance Co., which oversees the equivalent of $285 million. “Given the current level the index is standing at now, I do think some investors will buy low through margin trading so as not to miss the boat.”

Index Futures
Short selling may accelerate the introduction of stock- index futures that will allow investors to short contracts on the CSI 300 to hedge risk. The China Financial Futures Exchange published rules in June 2007 that said investors would be required to put up 10 percent of a contract’s value to buy, sell or short sell CSI 300-based futures. No date was given at the time for when the products will start trading.

Key Task
Short selling and margin lending “will attract inflow of some capital into the stock market, but won’t help reverse the market trend unless expectations about corporate earnings growth improve,” said Wu Youhui, a strategist at GF Securities Co. in Guangzhou. “Brokerages will benefit most as they’ll have a new source of income.”

It will take several days for the paperwork to go through, and the plan will be announced before the week-long National Day holiday next week or right after it, said the official.

Brokerages
According to the rules, only selected brokerages are allowed to handle margin trades as part of a pilot program. They must have three years trading history and net assets of no less than 1.2 billion yuan for the past six months.

The regulator stated that only companies with market values greater than 800 million yuan and with stable share prices are eligible to be sold short.

Source: Bloomberg 26.09.2008 : Zhao Yidi in Beijing at at yzhao7@bloomberg.net; Zhang Shidong in Shanghai at szhang5@bloomberg.net

Filed under: Asia, Australia, China, Exchanges, Hong Kong, India, Japan, News, Singapore, Trading Technology, , , , , , , , , , , , , , , , ,

China Regulators: Careful preparations ahead of Index Futures

The long-awaited stock index futures in the mainland market still need careful preparation due to changing situations, a senior official with the China Securities Regulatory Commission (CSRC) said, dampening market hopes that the product will kick off year.

At the half-yearly work meeting of the CSRC this week, a senior official said the regulator will continue preparatory work for the stock index futures under the principle of pursuing high standards and a smooth start, China Business News reported Thursday, quoting a source who attended the meeting as well.
While fortifying operations for existing futures products, the regulator will introduce new trading products steadily, the official said.

Currently, the nation’s fuel oil and metal futures contracts are traded in the Shanghai Futures Exchange, while farm produce futures deals are made in Zhengzhou and Dalian.

Established in 2006, the China Financial Futures Exchange will cover trading of Financial derivatives, including the stock index futures. Its virtual transaction is already under way.
Previously, there were market rumors that preparations for the index futures were close to an end and the launch was just around the corner.

Although the regulator has expressed similar expectations on different occasions, the situation has changed beyond the original plan so far, the CSRC official said. He vowed that financial authorities will review the market performance and make relevant preparations.
The official noted that the regulators will carefully consider individual investors’degrees of acceptance in the design of index futures. They will also draw lessons from warrants issued to prevent excessive speculation.

Last week, a source from China International Capital Co said the stock index futures trading is likely to be launched in January of next year rather than sometime this year after the Beijing Olympics.
The source stressed that the authorities deemed it prudent to launch index futures trading in a stable stock market environment with limited daily price fluctuations.

Source: SINA.com, CITIC Futures, Mr. Liang Haisan, 01. August 2008

Filed under: News, , , , , , , , , , ,