Index futures tweaked to curb trading risks

08:35, January 20, 2010      

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China Financial Futures Exchange (CFFEX) yesterday announced revised trading rules for stock index futures, which investors are expected to begin trading in April.

The revision raises the minimum trading margin for index futures from 10 percent to 12 percent and reduces the single-day maximum holding of futures contracts to 100 from 600, which was previously set during the trial period.

CFFEX issued index futures' trading rules in June 2007, and simulated trade has been conducted at CFFEX since October 2006.

Shanghai-based CFFEX also set the maximum price fluctuation at 20 percent above or below the initial listing price on the first trading day of the quarterly month. CFFEX officials say the revised rules are open for public comment until Jan 29.

"The main functions of the revision are to ensure the smooth launch of index futures, effectively control trading risks and improve the risk-management mechanism," said a CFFEX spokesman at a press conference yesterday.

"We will further improve the rules based on feedback we receive from the public," he said. "The final rules will be released after the revised version is reviewed by the board of CFFEX shareholders and approved by the top securities regulator."

The revised rules also seek to force investors to cut holdings when futures' prices consecutively hit the daily trading limit.

Trading contracts for index futures are based on the CSI 300 Index, which is composed of the 300 largest A shares listed on Shanghai and Shenzhen stock exchanges.

Each point is worth 300 yuan and the minimum trading unit is 0.2 point. The daily trading limit is 10 percent above or below the previous day's settlement price.

CFFEX released draft regulations for investors last week that require individual investors to have at least 500,000 yuan to open an account.

Investors must also have passed relevant examinations on futures trading, participated in mock trading for at least 10 days and conducted at least 20 transactions.

China Securities Regulatory Commission, the nation's securities watchdog, announced the planned launch of index futures earlier this month and formal trading is expected to start at CFFEX in April.

Market observers say the launch of index futures will have a limited impact on the stock market in the mid to long term, but the short-term impact remains to be seen.

Shares on the Shanghai exchange ended slightly higher yesterday with the benchmark Shanghai Composite Index rising 0.3 percent to 3246.87 points. The Shenzhen Component Index fell 0.08 percent to close at 13,350.67 points.

Source: China Daily
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