Mature financial futures market needed (2)

Many Chinese investors and commentators who have taken up the mantle of protector of investors' interests have expressed their concern that index futures trading could provide an effective tool, or an irresistible opportunity, for the stock market sharks to manipulate share prices for profit. In Hong Kong, which hosts an active market for financial futures, share prices often move irregularly on or around index futures settlement dates.

In a free and an open market, such irregularities can be expected to be quickly ironed out and equilibrium reestablished. Investors who are seeking to hedge their risks and speculators who are taking risk in the hope of big gains should be allowed free play in the market within the regulatory framework.

In Hong Kong and other financial centers, banks are the major players in the financial futures market which enables them to design many different derivatives products to suit the investment needs of their high-net-worth clients and funding needs of their corporate customers. Most of these derivatives products are tailor-made to fit the specific needs of individual clients. Some are packaged and sold in smaller lots to retail customers for investment purposes.

In times of uncertainty, many high-net-worth customers will ask their bankers to design for them derivatives products using index futures to lock in their gains instead of unloading their holdings, which could cause erratic price movements. For that reason, an active index futures market can help minimize the risk of a selling stampede by jittery investors when their confidence is sapped by a cloudy economic outlook.