CSRC "plays safe card" in stock option launch

China's securities regulator has approved Shanghai's first equity option, but the move is seen as conservative after more ambitious proposals were mooted in a consultation last month.
CSRC "plays safe card" in stock option launch

Stock options will be launched on the Shanghai market next month after the mainland securities regulator gave the long-awaited green light – but more tentatively than expected.

Following announcements late on Friday night by the China Securities Regulatory Commission (CSRC), an option on the SSE50 exchange-traded fund will launch on the Shanghai Stock Exchange on February 9.

“The regulator is playing a safe card,” said a Beijing-based index fund manager, but further products are likely to be added after the pilot option’s initial trading period. Friday’s announcement did not include selected individual stock options, which featured in the CSRC’s consultation paper last month.

“Among options written on index, individual stocks and ETFs, the ETF option is rather niche and the SSE50 comprises most blue chips.” He explained that the CSRC was encouraging risk management by providing an ETF option.

The executive said the CSRC would eventually introduce non-ETF options for indices and individual stocks, but it was hard to predict when that would be.

Under bourse rules for options trading, eligible retail investors must hold Rmb500,000 ($80,600) in their securities account, while institutional investors must have Rmb1 million. Such stringent financial requirements are not common on the Shanghai market.

Most of the participants at the initial stage will be managers from private securities funds and segregated accounts, said the index fund manager. From the experience of launching CSI300 index futures, he added, mutual fund managers are not expected to participate in initial trading, as most will wait to see how smoothly the operation runs.

The first mover in the market is GF Asset Management, a subsidiary of mainland brokerage GF Securities. GF AM plans to launch a multi-strategy private investment product, incorporating equity options. The firm will start fundraising this week through its parent’s branches and six other banks, targeting high-net-worth individuals with a minimum investment of Rmb1 million.

The biggest ETF tracking the SSE50 is Rmb25.6 billion in size and managed by China Asset Management. China AMC fund manager Fang Gun said he expected the ETF option to be moderately positive for inflows.

More broadly, the anonymous index fund manager said he expected the CSRC to further liberalise the derivatives market, with futures written on the CSI500 index and 10-year government bonds likely to be introduced in the short term. The regulator gave the go-ahead to CSI300 futures in 2010 and five-year government bond futures in 2013.

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