SHANGHAI, Oct 23 (Reuters) - China will launch simulated trading in stock index options on November 8, official media reported on Wednesday, as regulators move to enhance risk hedging options to support further financial reforms.
The China Financial Futures Exchange will base the options on the index that tracks the 300 largest companies on the Shanghai and Shenzhen stock exchanges, the official Shanghai Securities News reported, citing an exchange document issued to its members.
The options will be implemented European style, the report quoting the document as saying, meaning that holders can exercise their rights only on the day when contracts mature. They will bear a multiple of 100 yuan ($16.4) and only cash delivery is permitted.
The exchange plans to test five different contract tenors during simulated trading, according to the document.
Domestic media gave no timetable for the launch of formal trading of the options, but the exchange typically starts formal trading of a new product within two years of simulated trading.
Stock index options will be the third product to be launched by the exchange, which was established in 2006 and designated to host trading of China’s financial derivatives.
The exchange kicked off government bond futures trading last month to help China’s efforts to gradually liberalise its rigid interest rate regime after it began trading in stock index futures in April 2010.
Beijing is turning to financial innovation to drive growth as the world’s second-largest economy has shown signs of slowing sharply from the double-digit growth rates set during the last decade. Growth has been slowed by factors including weak demand for Chinese products in overseas markets, major overcapacity problems and other economic distortions at home.
To improve overall economic competitiveness, China is encouraging its companies and investors to rely less on government support and bank loans and instead turn to other market-driven financing channels to expand their businesses, a move that requires sophisticated market mechanisms with hedging tools for risk.
Among other developments under consideration, the Shanghai Stock Exchange is planning to launch individual stock options for blue-chip stocks as early as this year, in a bid to provide more hedging tools for institutional and wealthy individual investors.
China’s three commodity futures exchanges have also recently launched a slew of new contracts, such as futures for iron ore, steam coal and bitumen, and are planning others including those for crude oil, egg, and new types of rice products. ($1 = 6.1 Yuan) (Reporting by Lu Jianxin and Pete Sweeney)