China plans to introduce its first option contracts in stock indexes, in an effort to provide the regulator another method to hedge the risks of Shanghai and Shenzhen stocks markets, according to an official from China's top securities regulator.

"The (China Securities Regulatory) Commission will gradually expand the variety of commodity options and continue to prepare for the listing of the stock index options, on the basis of the smooth operation of the bean and sugar options," said Fang Xinghai, vice-chairman of the CSRC, at the Fourth Shanghai Derivatives Market Forum on May 25.

He also said more products and trading patterns would be rolled out to diversify the risk management functions in the derivatives market.

Stock index options can provide reliable reference indicators for policymakers, by effectively measuring and managing market volatility risks, said Zhang Jiawei, director of the introducing broker business at SDIC Essence Futures, a subsidiary of Essence Securities.

An introducing broker is a futures broker having a direct relationship with a client, but delegates trade execution and floor operations to another futures trader.

"The move also marks the regulators' determination to promote financial innovation," Zhang said.

As early as in June 2015, the China Financial Futures Exchange announced that the authorities concerned had prepared well for the CSI-300 stock index options, which were expected to be traded on the market in the same year.

However, because of the subsequent stock market crash, stock index futures were restricted and index options were held up.

"They will be China's first index options in the stock market, which will help improve the cash market liquidity, reduce systemic risks and volatility and improve the efficiency of the cash market pricing," Bloomberg quoted Wang Yanan, associate finance professor at Xiamen University, as saying.

Stock index options are financial derivatives based on stock indexes. Index options give the investor the right to buy or sell the underlying stock index for a defined time period.

Since they are based on a large basket of stocks in the index, investors can easily make their portfolios broad-based by trading in them.

Trading in index options will bring more arbitrage opportunities for investors, and will reduce the irrational fluctuations in the stock market, said an insider from the National Equities Exchange and Quotations, who declined to be named.

It is an important financial "insurance" tool in the cash market, and investors can manage risk in a more flexible and sophisticated manner with such tools, said Zhang.

Stock index options are one of the most successful and mature financial derivatives internationally. Together with stock index futures, options form a risk management system in the modern financial derivatives market, said Zhang.

Index options can hedge the risk of index futures to a certain extent, and their trading volume is larger than the latter, he said.

The CSRC is accelerating the listing of crude oil futures, and actively preparing for the listing of similar instruments in cotton yarn and paper pulp. It is also promoting research in new varieties with distinct regional characteristics such as futures in trade of pigs, apples and dates, Fang said.

In addition, the CSRC is working with the departments concerned to promote the participation of commercial banks in government bonds, he said.