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Monday 8 March 2010
Investors shun futures over high entry cost
Mainland investors have given the cold shoulder to the pending launch of the country’s first equity-based derivative, put off by the high entry threshold and complicated registration procedure.
Mainland investors have given the cold shoulder to the pending launch of the country’s first equity-based derivative, put off by the high entry threshold and complicated registration procedure.
Their cool response could jeopardise the successful debut of the long-delayed stock-index future, analysts warn.
The Shanghai-based China Financial Futures Exchange began accepting applications to open accounts for index futures on February 22, but only 20 investors registered at the bourse on the first day, while the total number of accounts opened in the first week was a scant 418.
“The lukewarm response resulted from the higher-than-expected margin requirement and the complicated procedure,” said Orient Securities analyst Joseph Kao.
“Not many investors would like to spend much time on the application process.”
The China Securities Regulatory Commission required investors to make a minimum deposit of 500,000 yuan (HK$567,600) to trade the index futures - a futures contract based on a stock index, which enables investors to protect themselves from the downside price risk by shorting the contracts.
According to CFFE president Zhu Yuchen, more than 90 per cent of retail investors on the mainland invest less than 500,000 yuan in the market. The 500,000 yuan threshold would ensure that only seasoned investors would participate in financial derivatives trading.
“Cash-rich retail investors are not interested in the new hedging tool either,” said West China Securities trader Wei Wei. “Investors now have a habit of doubting any reform efforts by the CSRC.”
The regulator also set the margin requirement at 12 per cent, higher than the 10 per cent expected by the market. The margin requirement is the initial minimum amount of cash an investor must deposit before making a transaction.
In order to shut unseasoned and innocent small investors out of the CFFE, the exchange also requires applicants to take a training course, and they will not be allowed to open accounts unless they pass a written test that examines basic knowledge of the financial derivative.
A Shanghai Stock Exchange researcher said the regulator was still spooked by fears that rampant trading on the financial derivative would undermine their efforts to liberalise the capital market. Hence they set a high threshold and required a complicated procedure.
Beijing is expected to officially launch the index futures in the middle of next month, CSRC chairman Dr Shang Fulin said on the sidelines of the ongoing National People’s Congress last week.
The country’s first financial derivative was planned for launch in 2007, part of Shang’s efforts to create a “multi-layered” capital market by giving investors a hedging tool. But the plan was put on ice by the State Council at the end of that year as the central leadership was concerned that heavy short-selling would cause a boom-to-bust on the stock market.
The bear run on the A-share market and the global financial crisis between 2008 and last year cemented the top policymakers’ belief that the timing was not right to liberalise the financial futures market.
In January, the State Council officially announced that China would launch the financial derivative as well as margin trading and short-selling.
“China has every reason to liberalise the financial futures market amid the soaring growth of the capital market,” said Liu Zhongyuan, chief economist with Xiangcai Qinian Futures. “If the launch of the index futures proves a failure, we can draw a conclusion that the entire reform of the country’s capital market is a flop.”
1 comment:
Investors shun futures over high entry cost
Mainlanders cool on derivative
Daniel Ren in Shanghai
08 March 2010
Mainland investors have given the cold shoulder to the pending launch of the country’s first equity-based derivative, put off by the high entry threshold and complicated registration procedure.
Their cool response could jeopardise the successful debut of the long-delayed stock-index future, analysts warn.
The Shanghai-based China Financial Futures Exchange began accepting applications to open accounts for index futures on February 22, but only 20 investors registered at the bourse on the first day, while the total number of accounts opened in the first week was a scant 418.
“The lukewarm response resulted from the higher-than-expected margin requirement and the complicated procedure,” said Orient Securities analyst Joseph Kao.
“Not many investors would like to spend much time on the application process.”
The China Securities Regulatory Commission required investors to make a minimum deposit of 500,000 yuan (HK$567,600) to trade the index futures - a futures contract based on a stock index, which enables investors to protect themselves from the downside price risk by shorting the contracts.
According to CFFE president Zhu Yuchen, more than 90 per cent of retail investors on the mainland invest less than 500,000 yuan in the market. The 500,000 yuan threshold would ensure that only seasoned investors would participate in financial derivatives trading.
“Cash-rich retail investors are not interested in the new hedging tool either,” said West China Securities trader Wei Wei. “Investors now have a habit of doubting any reform efforts by the CSRC.”
The regulator also set the margin requirement at 12 per cent, higher than the 10 per cent expected by the market. The margin requirement is the initial minimum amount of cash an investor must deposit before making a transaction.
In order to shut unseasoned and innocent small investors out of the CFFE, the exchange also requires applicants to take a training course, and they will not be allowed to open accounts unless they pass a written test that examines basic knowledge of the financial derivative.
A Shanghai Stock Exchange researcher said the regulator was still spooked by fears that rampant trading on the financial derivative would undermine their efforts to liberalise the capital market. Hence they set a high threshold and required a complicated procedure.
Beijing is expected to officially launch the index futures in the middle of next month, CSRC chairman Dr Shang Fulin said on the sidelines of the ongoing National People’s Congress last week.
The country’s first financial derivative was planned for launch in 2007, part of Shang’s efforts to create a “multi-layered” capital market by giving investors a hedging tool. But the plan was put on ice by the State Council at the end of that year as the central leadership was concerned that heavy short-selling would cause a boom-to-bust on the stock market.
The bear run on the A-share market and the global financial crisis between 2008 and last year cemented the top policymakers’ belief that the timing was not right to liberalise the financial futures market.
In January, the State Council officially announced that China would launch the financial derivative as well as margin trading and short-selling.
“China has every reason to liberalise the financial futures market amid the soaring growth of the capital market,” said Liu Zhongyuan, chief economist with Xiangcai Qinian Futures. “If the launch of the index futures proves a failure, we can draw a conclusion that the entire reform of the country’s capital market is a flop.”
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