China's three futures exchanges are expected to get the go-ahead to trade futures options later this year, industry insiders say, a move that has been long-awaited by the industry.

 

A futures option refers to the right, but not the obligation, to buy or sell a specific amount of futures contracts at a specified price during a specified period of time.

 

"It is almost certain that the regulator will give the greenlight to our three exchanges to trade futures options within this year," said Qu Lifeng, vice-general-manager of Dalian Commodity Exchange, the largest agriculture futures bourse in the country.

 

Qu said this would not start until August or September.

 

If the trading of futures options comes true as expected, it will make this year one of the most momentous in China's struggling futures industry.

 

After a one-year lull last year, during which no new products were introduced in the futures market, two new products - white sugar futures and soy oil futures - were introduced earlier this month.

 

"As far as I know, the regulator has made up its mind to allow the trading of futures options, and they are just waiting for the right timing," said Qu, whose exchange is now busy installing and testing the trading system for a soybean futures option. This will be completed by July, he said.

 

Shan Fulin, vice-chairman of the China Securities Regulatory Commission (CSRC), said last week that the government would launch the commodity futures option "at the proper time."

 

Industry insiders say they expect the three commodity exchanges will get the OK to trade one option on futures.

 

Zhengzhou Commodity Exchange is expected to trade a wheat futures option, which it began researching in 2003.

 

"We are ready and just waiting for the final nod from the regulator," said a senior manager at the Zhengzhou exchange.

 

Shanghai Futures Exchange, which mainly trades metal and raw materials futures, is currently working on a copper futures option.

 

"We are trying to make the trading of the copper futures option realized at a date as early as possible," the exchange announced in a statement.

 

Analysts say the trading of futures options, which they insist is not a surprise move, could help revitalize the futures market.

 

"It will come as no surprise if futures options are allowed to be traded this year," Zhang Long, a senior futures analyst with Shihua Financial Service.

 

"The whole (futures) industry has been waiting for such products for a long time," Zhang said.

 

Earlier this week, a senior futures regulator disclosed that a new exchange would be set up in Shanghai to trade financial futures and derivatives.

 

All of those moves, analysts say, are expected to spur the development of the futures market, which experienced downturns last year.

 

(China Daily January 18, 2006)