Index futures to blossom in March

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Margin trading, short selling of stocks likely to start from April

Stock index futures are likely to make their much-awaited debut on March 22, a source with knowledge of the matter told China Daily Tuesday.

The China Financial Futures Exchange (CFFEX) already started to accept applications for index futures trading accounts from Monday after the securities regulator formally approved the trading contracts and the revised rules of the new financial instrument.

An investor who registered for trading in index futures responds to reporters’ questions at the Galaxy Futures Beijing ofﬁce. The China Financial Futures Exchange started accepting applications for index futures trading accounts on Monday. [China Daily]

Though interest in the new instrument is high, account openings have been sluggish as investors remain cautious about the potential trading risks. CFFEX said in a statement Tuesday that "not many" accounts have been successfully opened but did not disclose the exact number.

The China Securities Regulatory Commission (CSRC) has set a threshold of 500,000 yuan ($73,225) as the minimum deposit for the accounts. It also raised the minimum trading margin from 10 percent to 12 percent and reduced the single-day maximum holding of futures contracts to 100 from 600.

CSRC officials said the purpose of the revision was to ensure the smooth launch of index futures, effectively control trading risks and improve the risk-management mechanism.

Analysts said any immediate impact from the new instrument on the market would depend on how the market performs prior to the launch.

"If the market sees a rally prior to the trading, the launch will trigger an immediate correction. Otherwise the market will continue to fluctuate before the economic outlook brightens," said Zhang Fan, an analyst at Changjiang Securities.

Zhang, however, said an immediate impact would be limited due to the relatively high entry requirements set by the regulator.

Blue chips and brokerage shares are set to benefit the most from index futures as trading is based on the CSI 300 Index, which tracks the 300 largest A-shares on the Shanghai and Shenzhen bourses. China Merchants Bank, Bank of Communications and Ping An Insurance hold the top three slots in the CSI300.

Margin trading and short selling of stocks are also expected to be launched after the top 11 brokerage firms submit their applications for the pilot program.

The regulator is expected to select eligible operators from the 11 firms and the business is likely to start by April.

The Shanghai and Shenzhen stock exchanges have set an initial basket of 50 shares from the Shanghai 50 Index and 40 from the Shenzhen Component Index.

The bourses are also soon expected to unveil detailed rules for using stocks, exchange-traded funds, and other instruments as collateral.