After years of mock trading, the China Financial Futures Exchange (CFFEX) will finally begin business in earnest on April 16, the exchange announced last Friday in a statement on its website.
The announcement marks progress in major reforms to the country's financial system as along with the announcement of an imminent start to trading on the country's first stock index futures exchange, a select group of securities companies were given the green light from regulators and began offering margin financing services to select clients today.
The new stock index futures will track the CFFEX Hushen 300 Index, which is composed of about one fifth of all stocks listed on China's two stock markets and accounts for approximately 60 percent of the markets' value. The index attempts to reflect the performance of both the Shanghai and Shenzhen stock markets.
According to the CFFEX statement, contracts for May, June, September and December 2010 will be the first to trade on the exchange and investors will be required to put down cash deposits equal to 15 percent of the contract value for both the May and June contracts.
For the September and December contracts, the deposit required will rise to 18 percent.
Furthermore, a 0.05 percent transaction fee will be levied on the total turnover of the exchange.
Various influential Chinese economists have weighed in on what the new futures exchange means for the domestic market.
Chang Qing, a well-respected economist working at the China Agricultural University, assured investors worried about whether Chinese speculators will attempt to make quick returns off the new board by driving prices up, that all would be okay, predicting that the market would remain flat during the opening weeks of the new exchange.
"Up untill March 26, over 3,000 people have opened an account to trade stock index futures, 90% of these accounts belong to commodities futures traders. They have rich experience in investing in futures markets and are capable of managing the risks, so the stock index futures won't be used by speculators," Chang said.
Hu Yuyue, another respected economist based at the Beijing Technology and Business University, said the new exchange would strengthening leading stocks in the Chinese securities markets and further weaken the weak stocks.
He also said that "The stocks that make up the Hushen 300 Index are all blue chip companies and are the mainstream of the Chinese economy."
Li Ulrich, chairman of JPMorgan's China equities and commodities business, predicted that the A share market would perform well in the following three to six months and might out perform the Hong Kong market, thanks to the relatively healthy macro economy and adequate capital in market.
Margin Financing
In related news, six domestic securities companies will begin offering margin financing services for stocks listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange as of March 31st. The new service allows investors to borrow cash from qualified securities brokers in order to buy securities or alternatively borrow equities from securities brokers in an attempt to profit by short selling. Currently, investors in China's domestic stock markets can only profit by betting on rising stock prices.
Background
The State Council first gave in principle support to the establishment of a stock index futures market over three years ago and the CFFEX was established as a domestic home for stock derivatives trading in Shanghai in September 2006.
China Securities Regulatory Commission (CSRC) announced in mid-January that it was giving the China Financial Futures Exchange (CFFEX) permission to fire up the stock index futures market that has been waiting to get the green light since it was established in 2006.
Links and Sources
China Financial Futures Exchange: Report (Chinese)
Economic Observer: Commentary (Chinese)
Economic Observer: Margin Financing Services Article (Chinese)
Economic Observer: China\'s Stock Markets Enter New Era
Caixin Online: China Sets Date for Stock Index Futures Launch
