China stock market index futures debuted on the Singapore Stock Exchange under the cloud of legal action from China's stock exchanges against the publisher of the index being traded.

 

Only some 200 contracts of the SGX FTSE Xinhua China A50 Index Futures were traded, compared to over 17,000 contracts of SGX MSCI Taiwan Index Futures and 13,000 Japan Index Futures on the same day.

 

The limited trading was anticipated by mainland analysts who closely followed the debut.

 

"Legal action taken by China's exchanges against the publisher FTSE/Xinhua Index was certainly a top reason for the limp debut," said Wu Bowen, a futures trader with Shanghai Jinpeng Futures Co.

 

Yet as with any newly introduced product investors will take time to get used to the index futures, analysts also noted.

 

All 200 traded contracts were for settlement on September 28. No contracts for other settlement dates were traded yesterday.

 

The contracts for September settlement opened at 5,145 points, with one point representing US$10, at 9:30 am in Singapore and closed two points lower at 3.05 pm. The spot price of the underlying FTSE Xinhua China A50 Index, which tracks the A shares of the 50 biggest mainland-listed companies, opened at 5126.58 points and closed at 5,132.40.

 

"The low trading volume rendered the difference between spot price and futures price irrelevant," said Zhong Liming, a derivatives researcher with Guotai Jun'an Securities.

 

At the end of last month, the data compiling units of the Shanghai and Shenzhen stock exchanges SSE Infonet Ltd and Shenzhen Securities Information Co Ltd launched a suit against the joint venture index firm between Britain's FTSE Group and Shanghai-based financial services firm Xinhua Finance, FTSE/Xinhua Index, for breach of contract and violation of intellectual property.

 

A Shanghai district court will hear the case in October, the official Shanghai Securities News reported.

 

The outcome of the lawsuit is important for domestic exchanges as they are launching their own China stock index futures contracts and have long been wary of Singapore stealing a march on their plans.

 

Singapore Exchange, Asia's third largest stock bourse after Tokyo and Hong Kong, successfully launched Japan and Taiwan stock index futures contracts in 1986 and 1997, respectively, ahead of the two country's own launches.

 

Singapore's launch of China stock futures was targeted mainly at foreign investors, particularly qualified foreign institutional investors approved by Chinese authorities.

 

By comparison, China has been slow to launch risk-hedging tools for investors in its own market. China's proposed financial derivatives exchange is expected to be inaugurated in mid-September, probably short of ample preparation time, industry sources said.

 

Yet it may take months of testing before the stock index futures the first product to be traded at the new exchange can be formally launched, they said.

 

The FTSE Group yesterday said it is in talks with Chinese firms to avoid a court battle.

 

However, a Shanghai exchange legal affairs official, who spoke to China Daily on condition of anonymity, said negotiations had been attempted in vain on their side before they filed the suit.

 

(China Daily September 6, 2006)