China may introduce stock index futures as early as June or July, a source said, a claim that some experts believe to be unlikely.

 

"The introduction of the financial derivative products may come to the market much earlier than expected," said the source, who requested anonymity.

 

"The first product would be stock index futures, but not the State Treasury bond futures as some have anticipated," the source, who is close to the China Securities Regulatory Commission (CSRC), the country's top securities and futures watchdog, told China Daily.

 

The decision to launch the stock index futures at such an early date, the source said, is partly prompted by the scheduled trading of a China stock index futures contract in Singapore.

 

Singapore Exchange (SGX) announced last month that it is planning to launch an internationally available stock index futures contract based on China stocks in September.

 

The China stock index futures contract will be based on FTSE/Xinhua China A 50 Index, which is composed of top 50 domestically-listed China A-share stocks by their market capitalization.

 

Currently, shares in Chinese stock markets are divided into A share, which is traded in local currency, and B share, the foreign currency- dominated stocks.

 

"Some CSRC officials are concerned that the trading of the FTSE/Xinhua China stock index in Singapore would deprive price discovery function of the planned financial exchanges in Shanghai, prompting them to accelerate the introduction of stock index futures," the source said.

 

"Launching the stock index futures contract earlier than September is even becoming a pressing "political task" for some CSRC officials," he added.

 

But some doubt this will happen.

 

"In my view, it (launching of stock index futures) is unlikely to happen in June or July," said Hu Yuyue, director of the futures research institute at Beijing Technology and Business University.

 

"In June or July, even whether the planned financial derivatives exchange will have been completed, is an open question, not to mention the trading of new products," Hu said.

 

The professor said that State Treasury bond futures should be introduced first in the new financial derivative bourse, while stock index futures introduced after the ongoing share-merger reform is completed.

 

Currently, domestically-listed companies' shares are divided into tradable ones and non-tradable ones, which are usually owned by the State and legal persons, an arrangement that is blamed by many as the major drag on the domestic stock market.

 

China started the share-merger reform last April, aiming to make all shares of listed companies in China tradable.

 

So far, about one-third of the companies listed on the Shanghai and Shenzhen stock exchanges have completed the share-merger reform.

 

"Only when the share-merger reform is done, then the time for introducing the stock index future is mature," said Hu, the futures studies professor.

 

Since the government gave the nod to establish a new exchange in Shanghai to trade financial derivatives in January, stock index futures and State Treasury bond futures have been widely seen by the market watchers as the two front-runners to debut in the new bourse.

 

And the ongoing share-merger reform, which many say is moving smoothly and well, is adding fuel to the expectation that stock index futures would be the first product to debut on the new financial exchange.

 

But authorities are still tight-lipped about which product would come out first.

 

In a related development, signs are emerging that the government is moving faster to establish the new financial derivatives exchange.

 

Headed by Fan Fuchun, one of CSRC's vice-chairmen and the top official in charge of the futures affairs in CSRC, a task force that was set up to establish the bourse convened its first meeting last week in Shanghai, where the new exchange will be based.

 

The current five exchanges three futures exchanges and two stock exchanges will each hold 20 percent of the share in the new financial derivatives bourse.

 

(China Daily February 22, 2006)