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Rollout of Options in China
By: SGX Market Updates
China financial reforms could best be summed up in the late leader Deng Xiaoping’s words, "crossing a river by feeling the stones".
On 9 February, Shanghai Stock Exchange launched China’s first financial options, the SSE50 ETF options. The first day saw some 18,843 contracts traded, a smooth debut which did not result in excessive volatility or irrational speculation. Market reopened after the long Chinese New Year break with 16,856 contracts traded.
The options are based on the Exchange-Trade Fund (ETF) that tracks the SSE50 index, composed of the 50 most heavily weighted stocks on the bourse. The regulator is essentially guiding investors into blue chips, which most retail investors have avoided in favour of smaller firms, whose valuations have soared.
Due to their perceived risky nature, China has taken careful steps, through intensive investor education, strict regulatory policy and trading restrictions to curb risk. Plans to trade options for individual stocks have yet to be disclosed, a sign that the regulator has adopted a cautious approach.
The launch of options represents a major milestone and innovation in the country's equity markets. Options offer investors more flexible risk coordination tools.
Market makers and proprietary desks are reportedly using the SSE50 ETF to hedge customers’ options positions. Yet on the other...................... To view our full article Click here
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