The newly inaugurated China Financial Futures Exchange (CFFEX) has released preliminary specifications for mainland stock market index futures contracts, the first product to be traded on the CFFEX.

 

The provisions cover the contract size, tick value, margin requirement and price movement limits. These specifications are subject to change before the formal launch of trading in the contracts by the end of this year or early next year.

 

Meanwhile, simulated trading in the stock index futures will be initiated by the exchange soon after the seven-day National Day holiday in October, said industry sources. Fifteen top Chinese futures companies including Shanghai Jinyuan Futures Brokerage Co and China International Futures (Shanghai) Co will participate in the simulated trading.

 

The stock index futures contract is based on the existing Shanghai & Shenzhen 300 Index, CFFEX said on its website. The index covers about 60 percent of the market value of the Shanghai and Shenzhen markets and includes big-cap companies like Bank of China and China Petroleum & Chemical Corporation (Sinopec).

 

The value of one index point is temporarily set at 300 yuan (US$37.5), more than the previously speculated 100 yuan (US$12.5) and 200 yuan (US$25), while the margin level is set at 8 percent.

 

A higher benchmark ensures the relative stability of the stock index futures market at an initial stage, said analysts.

 

"However, an inappropriately high futures multiplier will affect the flexibility of investment in the derivatives exchange market. So the current futures multiplier is enough," said Gao Zijian, an analyst with Oriental Securities.

 

If the Shanghai & Shenzhen 300 Index hovers around 1,350 points, the value of one index futures contract will be 405,000 yuan (US$50,625) and the margin charged for each contract will be more than 30,000 yuan (US$3,750).

 

The smallest price movement is set at 0.1 of a point, according to a report in the official industry newspaper Shanghai Securities News.

 

Though the CFFEX stated on its website that individual investors are "entirely allowed" to engage in the trading of the index futures contract, analysts expect the contract will only attract institutional investors at the initial stage.

 

"Big securities companies are welcome to engage in arbitrage across the stock index futures and the regular stock markets," senior CFFEX official Chen Han said at a weekend forum hosted by the Shanghai Futures Association.

 

More than 95 percent of investors in today's mainland spot market are operating investments under 100,000 yuan (US$12,500).

 

(China Daily September 20, 2006)