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Stock index futures back to the future

(Shenzhen Daily)
Updated: 2006-10-17 10:21
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The government is likely to miss its goal of launching stock index futures by the end of this year or early 2007 due to technical and legal obstacles, sources familiar with the situation said.

Stock index futures, China's first financial derivatives contracts, are unlikely to start trading until the end of the first quarter of 2007 or possibly as late as April.

The government is eager to develop the country's capital markets by launching domestic stock index futures, which the country's securities regulator had said could start trading by year-end or early 2007.

The launch of a Chinese index futures contract in Singapore in September added to the urgency of getting a domestic alternative under way.

"In my opinion, it is impossible to launch stock index futures by the end of this year. According to the test results, the mock trading system in the China Financial Futures Exchange is still too premature," a source familiar with the exchange said Friday.

The country formally launched its first financial derivatives exchange in Shanghai in early September. Officials said the first contract would be based on an index of the 300 largest firms listed on the Shanghai and Shenzhen stock exchanges.

Futures brokers said their firms are only starting to test systems in preparation for mock trading of the stock index futures. At least one preliminary test to model how movements in the index would feed through to futures has already been conducted.

China is also adjusting its laws to remove prohibitions against equities brokerages trading in futures contracts.

The revised futures trading rules require approval from a variety of regulatory bodies and ministries, which could contribute to delays in the contract launch, a central bank source said.

There is also a heated internal debate in the Central Government over whether it is proper for China to launch stock futures trading in a hurry when the country is not fully prepared on every point for such a risky business, the bank source said.

Opponents worry the index futures could spur speculation in domestic stock markets.

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