China gives nod to index futures, margin trading

09:09, January 09, 2010      

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China's securities regulator said Friday the State Council had approved "in principle" the launch of index futures and given it the green light to pilot the margin trading business.

Its introduction was aimed to boost the stable and healthy development of the capital market, said an official with the China Securities Regulatory Commission (CSRC). The move came after the benchmark Shanghai Composite Index surged 80 percent in 2009 after tumbling 65 percent in 2008.

"This is a milestone in the development of the country's capital market", said Xu Ling, general manager of Haitong Futures. It would help reduce wild fluctuations in the stock market, he added.

The view was echoed by Zhao Xijun, deputy director of the Institute of Finance and Securities at Renmin University of China. He added "this also means more investment options for investors".

The regulator would select the first batch of securities companies for the margin trading business soon, based on their net capital, risk control and regulatory management, said the CSRC official.

Margin trading allows securities companies to lend stocks and money to investors, which would interest companies with abundant capital, such as CITICS Securities.

The pilot program would be gradually expanded according to its progress, said the official, offering no specific timetable.

It would take about three months to prepare for the launch of stock-index futures, a long-awaited futures item, according to the CSRC.

The CSRC would prepare a series of standards which investors would have to meet, an entry-permit for financial institutions, as well as guidelines for approving futures contracts and opening of investors' accounts.

"It is very good time to introduce index futures," Xu said, adding the stock market was expected to handle its introduction well as the fallout of the global financial crisis was fading and China's economy was recovering.

Analysts said that the launch of the index futures would help boost blue chips and investors would have tools to hedge or speculate. Li Xunlei, chief economist with Guotai Junan Securities said the index futures would guide more capital to blue chip stocks.

Li also said the market should react rationally towards the launch of margin trading given that the trial run would likely only be small in scale.

Source: Xinhua
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