CHINA LAUNCHES STOCK INDEX FUTURES
CHINA PUSHES FINANCIAL launch, a tiny fraction of the 140 million
investors in the Shanghai and Shenzhen
INNOVATION WITH FUTURES stock exchanges, with only a handful of
wealthy individuals passing eligibility
Institutional investors are largely staying
on the sidelines to start with as they
await specific rules and foreign investors
will not be able to participate at first.
Over time, however, futures should help
bring greater diversity and
professionalism to a market that has
often been referred to as a casino -- that
is, rather than just adding another table
at which to play, it could be a catalyst for
a fundamental shift towards a more
"The launch of index futures will be a
new starting point for the deepening of
China's capital markets," said Ba
Shusong, a prominent economist at the
cabinet's Development Research Centre.
That shift is expected to come in part by
increasing the role of large institutions,
as opposed to the current dominance by
retail investors -- who account for about
Reuters Image 70 percent of stock market turnover and
often end up following each other in one
By Jason Subler and Lu Jianxin "These are two of the hardest roadblocks. direction, leading to big market ups and
I think the chances for it to work are fairly downs.
SHANGHAI, April 15 (Reuters) - China's high."
launch of trading in stock index futures NO MORE FOLLOWING THE PACK?
marks a milestone in making its financial The stakes are high for the long-awaited
markets more professional and less introduction of futures trading, which was But it's not just about mitigating the role
speculative, even though they are likely pushed back on account of the global of individual punters.
to get off to a slow start. financial crisis after years of planning.
Many institutional investors themselves
By making it possible for investors to It could serve as a watershed for currently follow very similar investment
short the market or bet on a rise against accelerating reforms to liberalise the strategies, in part because of a lack of
the tide, futures, together with other capital markets, gradually opening them hedging tools, which limits the scope for
reforms such as a pilot programme on up to greater inflows and outflows of creating mutual funds or other products
short selling of stocks, should ease the investment and eventually culminating in that veer away from either betting on a
Chinese market's notorious volatility. making China's yuan currency fully rising market or safely stowing money in
convertible. cash, Ba said.
If all goes smoothly, it could pave the
way for the gradual introduction of a If it goes wrong, as some experiments Index futures and the accompanying
range of other derivatives and products, with reform have before, the whole ability to short the market, or bet on falls,
from options to global exchange-traded liberalisation project could be pushed will open the way for institutions to
funds, that will be needed to realise the back. design other products, such as capital-
ruling Communist Party's stated goal of preservation funds.
building Shanghai into a global financial After bad experiences with the
centre by 2020. introduction of derivatives such as Importantly, they should provide a
warrants, Beijing is taking few chances. channel to divert selling pressure when
"Short selling together with index futures Marked by high margin requirements and the market is falling, promoting long-term
are probably the two most important other restrictions, few expect futures to stability, said Gao Zijian, chief derivatives
pieces in the China capital markets make any major waves at first. analyst with Orient Securities in
toolbox," said Jerry Lou, China strategist Shanghai.
with Morgan Stanley in Hong Kong. Roughly 6,000 futures trading accounts
are expected to be opened by their
For editorial content, please contact:
Jason Subler, Shanghai Bureau Chief, firstname.lastname@example.org
CHINA STOCK INDEX FUTURES
As investors increasingly seek
opportunities for arbitrage between
CHINA STOCK INDEX
futures and the cash market, they will
expand the volume of transactions in the
spot market, improving liquidity, said
FUTURES RISE ON DEBUT
Fang Shishen, formerly with Taiwan's
futures exchange and now an adviser at
Orient Securities Futures.
A limited pilot programme for margin
trading and short selling was launched
last month, and many analysts and
investors hope that more innovations,
like options, will follow in tandem with
greater openness to the outside,
eventually easing the tight restrictions on
foreign participation in the markets.
Bringing China more fully into global
markets would not only offer foreign
investors more opportunities to benefit
from its booming economy, on its way to
surpassing Japan as the world's second-
largest, but also help ease some of the
distortions caused by the current tight
capital controls, analysts say.
But the launch of the index futures on the Reuters Image
China Financial Futures Exchange on
April 16 is not without its perils, By Jason Subler and David Lin shifted funds into the new market and
especially worries about low liquidity and away from the underlying shares.
heavy speculation. SHANGHAI, April 16 (Reuters) - China
launched its first stock index futures on The benchmark Shanghai Composite
Mutual funds, brokerages and insurance Friday, a milestone in the development of Index <.SSEC> closed 1.1 percent lower
companies, the very players who are the country's relatively young financial as property shares were hit by fresh
expected to bring greater stability, have markets, with initial signs of a warm government measures to cool surging
yet to see specific guidelines governing welcome from investors hungry for new home prices, including increasing
their participation. trading tools. mortgage rates and down payment
Some observers also looked for At an opening ceremony at the China
cautionary tales from China's stock Financial Futures Exchange (CFFE) in The CSI300 <.CSI300> index of the
warrants market, which often came to Shanghai's financial district, officials largest firms by daily turnover and
resemble a casino as low commissions addressed investors and guests from market capitalisation on the Shanghai
and huge price swings drew speculators overseas exchanges, with red banners and Shenzhen exchanges, on which the
who often made wild bets on hopelessly on the walls proclaiming the occasion. futures are based, also fell 1.1 percent.
When the electronic board at the front of Some analysts expect that index quickly
"Six months from now, heaven knows? the room showed all four contracts rising to replace the Shanghai Composite as
Index futures may have become just like after the opening gong, the crowd grew the benchmark now that the futures have
warrants," said Galaxy Securities analyst loud with excitement. been launched, as investors focus more
Ren Chengde. on index heavyweights.
"The last thing regulators wanted to see
But analysts said the tight initial was too much volatility," said a manager Plenty is riding on the success of the
restrictions showed the authorities' at a futures brokerage. "Since prices did futures market as China looks to expand
determination to achieve a stable start. not fluctuate too much and the market and deepen its financial markets and
appeared to be going in the desired attract more sophisticated investors
"I think a successful launch would be direction, people were relieved."
mitigating risk, ensuring the system runs For one, futures are expected to give
smoothly," said Dean Owen, chief China The nearest contract, to be delivered on investors a vital tool for hedging, helping
representative for French futures May 21 <CIFK0>, opened up 1.3 percent to ease the wild swings that have
brokerage Newedge Group. from the base value of 3,399 points set characterised Chinese markets in the
for all the contracts. It fell back slightly in past and making it possible for them to
"I would not expect huge volumes initially. afternoon trade to close up 0.5 percent, use a broader range of investment
That is not the priority. Once it is at 3,416 points. strategies.
launched, people see it's pretty smooth,
and there's no huge volatility...the The rise in the futures, accompanied by
number should grow exponentially." much higher than expected trading
volume, contrasted with a fall in the spot
share market, in part as some investors
CHINA STOCK INDEX FUTURES
Shanghai, Zhengzhou and Dalian was
130 trillion yuan ($19 trillion) in 2009, the
world's biggest commodity futures
market, with average daily turnover of
around 500 billion yuan.
The longer-term index futures contract
suggested investors remain confident
about the prospects for growth and
corporate earnings in the world's third-
largest economy, despite near-term
worries about overheating and potential
In the cash market, immediate concerns
about tougher mortgage requirements
announced on Thursday weighed on
Developer and construction firm China
State Construction Engineering Co
<601668.SS> fell 0.5 percent, and China
Vanke <000002.SZ> fell 0.8 percent.
About 70 percent of spot share market Exchange officials have said in private
turnover comes from retail investors, who that if the index futures proved to be a Hong Kong shares also retreated on the
often end up following the crowd, success, the next product -- options on new property measures, with the Hang
increasing volatility, while most of the the futures -- could be launched within a Seng Index <.HSI> down 1.3 percent
wealthy individuals who currently year.
dominate futures trading are relatively
experienced. Equally important to the positive pricing
on the debut, the volume of futures
If things go smoothly, the futures could trading surprised on the upside. With
herald the start of a fresh round of 58,500 lots traded in total for turnover of
innovation, leading to more products that 605 million yuan ($89 million), activity
will help the country's markets develop was far greater than analysts had
towards becoming a global financial expected.
centre, as the government aims to
engineer by 2020. "Such a debut gives us confidence that
the turnover of the index futures could
While the futures are currently not reach roughly the same level as for
available to foreign investors, many are China's commodity futures," said Liu
hopeful that Qualified Foreign Zhongyuan, chief economist at Xiangcai
Institutional Investors (QFII), who may Qinian Futures in Shanghai.
participate in the capital markets through
a quota system, will be allowed in Combined turnover of China's three
sometime soon. commodity futures exchanges in
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CHINA STOCK INDEX FUTURES
CHINA’S FIRST STOCK INDEX FUTURES CONTRACTS
SHANGHAI, April 15 (Reuters) - The Shanghai-based China Minimum price change: 0.2 index points
Financial Futures Exchange (CFFE) will launch the country's first
stock index futures on April 16. Daily limits: 10 percent up or down from previous settlement price.
The Shanghai Stock Exchange is the world's fifth-largest bourse, Contract months: Delivery month; next month; and the two
with a market capitalisation of $2.6 trillion and average daily subsequent end-of-quarter months
turnover of about 100 billion yuan ($14.65 billion). Trading time: Monday to Friday except public holidays.
9:15 a.m. to 11:30 a.m. (0115 to 0330 GMT)
But China has no major financial derivative products, leaving 1:00 p.m. to 3:15 p.m. (0500 to 0715 GMT)
investors without hedging tools and limiting the country's pricing Last trading/settlement day: Third Friday of the delivery month
power in the international arena.
Delivery method: Cash delivery
China aimed to breathe new life into its stock market with the Trading code: IF
establishment of the CFFE in 2006, although the launch of new Reuters Instrument Code: <0#CIF:>
products has been delayed by the global financial crisis.
Following are details on the pioneering index futures contracts, as TRADING REQUIREMENTS:
published on the exchange's website (http://www.cffe.com.cn). Individuals:
- At least 500,000 yuan on deposit for margin requirements to
open an account;
CONTRACT DETAILS - Pass relevant examinations on futures trading;
Underlying index: The CSI300 Index <.CSI300>, which is based - Participate in mock trading in index futures for at least 10 days
on the 300 largest firms by daily turnover and market capitalisation and conduct at least 20 mock transactions;
on the Shanghai and Shenzhen stock exchanges. - No record of serious violations of securities rules.
Unit: Index point Institutional investors:
- At least 1 million yuan in net assets;
Contract size: 300 yuan times the level of the CSI300. Based on - At least 500,000 yuan on deposit for margin requirements to
the index's Thursday close of 3,394.573 points, a single contract open an institutional account;
would be worth 1,018,372 yuan ($149,200). - Employ professional futures trading personnel who have passed
Minimum margin: 12 percent of the contract's value, meaning - Participate in mock trading in index futures for at least 10 days
investors would have to put up more than 122,000 yuan to trade and conduct at least 20 mock transactions. Alternatively, have
one contract at current index levels. concluded at least 10 deals in commodity futures transactions over
the past three years;
Trading unit: one lot, or one contract - No record of serious violations of securities rules
INDEX FUTURES COULD SPUR as 130/30 funds and leveraged
exchange-traded funds within two years,
said Wei Zhiyu, analyst at Shenyin
CHINA’S FUNDS INDUSTRY Wanguo Securities Co.
And for China's private investment funds,
By Samuel Shen and which operate outside government
Edmund Klamann supervision and are estimated to be
worth more than 100 billion yuan ($14.65
SHANGHAI, April 16 (Reuters) - China's billion), the derivatives will be an
launch of stock index futures is set to immediate boon.
provide a long-term boost to the
country's funds industry by fostering new "Index futures would make financial
investment products and maybe even a products more plentiful in China, where
homegrown George Soros. investment channels are limited," said Ba
Shusong, senior researcher at the State
Asia's second-largest economy has Council, China's cabinet.
embarked upon further liberalisation of
its financial markets even as Western "The short-term impact is limited, but
nations are heavily scrutinising the role over time the index futures will change
played by derivatives in causing the China's investment landscape."
financial crisis and are eyeing ways to
control their use. China on Friday launched index futures -
agreements to buy or sell an index at a
China is adopting a phased introduction given value on a future date -- along with
of the stock index futures, to ensure their margin trading and short selling of
orderly growth. Still, for the country's shares, to provide investors with tools to
$380-billion mutual fund industry, it Reuters Image manage risks in a notoriously volatile
would enable rolling out products such stock market.
CHINA STOCK INDEX FUTURES
All four of the index futures contracts
<0#CIF:> rose in active trading on their
first day, in an apparent sign that
investors are bullish about the long-term
prospects of China's stock market,
traders and analysts said.
The instrument will spawn new
investment strategies by institutions that
could grow into Chinese equivalents of
Soros Management Co, founded by
billionaire investor Soros, or Man Group
Plc, analysts said.
"Index futures will generate many
money-making models," said Wu
Guoping, who manages a private
management fund in the southern
Chinese boomtown of Shenzhen.
"Players in this market will become more
sophisticated and brainy."
China is particularly keen to build up its
mutual fund sector to broaden
investment opportunities for the country's
$4 trillion in household savings.
Regulators, however, appear cautious in
allowing institutional participation in overseas hedge funds but without future more institutional investors being
futures trade initially. hedging tools. able to participate in index futures, like
banks and hedge funds."
Financial institutions, including mutual Because they are not regulated by the
funds, brokerages and insurers, have not government, these funds could become Not everyone is enthused by the launch
yet been allowed to open index futures the most active and innovative players in of the futures.
accounts, leaving the market dominated China's nascent index futures market.
by retail investors. "Derivatives are a double-edged sword: If
"There could be countless strategies you bet the wrong way, you expose
Mutual funds will also be subject to tough developed on the basis of index futures yourself to more risk, not less," said
regulations once they are allowed access, by such funds," said Tang Xuan, analyst Chen Zhimin, head of investment at E
with draft rules capping the value of their at the Shanghai Stock Exchange. "There Fund Management Co. "We currently
long futures positions at 10 percent of are many players outside who are eager have no plans to trade index futures."
net assets and short positions at 20 to jump into this market."
percent of stock holdings. Some said it may be better to wait before
Foreign institutions are also keen to participating.
In addition, funds can only trade the trade index futures in China, according to
derivatives to hedge risks, not for Dean Owen, chief representative in "Liquidity is likely to be low in China
speculative purposes. China of Paris-based futures broker initially due to a high threshold and
Newedge Group. stringent risk control, so the time is not
"The pilot stages are designed to keep ripe for institutions to use complicated
potential risks and uncertainties to a "Newedge customers all want to come to financial tools," said Bai Youge, vice
minimum," said Evian Shi, analyst at China," Owen said. "The door is opening manager of Shenyin Wanguo Hong Kong.
fund consultancy Z-Ben Advisors. gradually, and I think you will see in the
But index futures will prove a badly
needed tool for mutual funds to manage
risks, diversify products and build core
competitiveness, said Ti Yuntao, analyst
at Shenyin Wanguo Securities, who
hailed the innovation as marking a new
era for China's fund sector.
Index futures may also foster the
development of a genuine hedge-fund
sector in China.
Hundreds, possibly thousands, of private
investment funds currently operate in
China with structures similar to those of
CHINA STOCK INDEX FUTURES
HONG KONG VS SHANGHAI AS GLOBAL FINANCIAL CENTRES
Although it maintains a peg to the U.S.
dollar, Hong Kong imposes no capital
controls and lets the HK dollar trade
freely in international markets.
In contrast, China's renminbi (RMB) is
not fully convertible. The People's Bank
of China manages the currency's value
against a basket of currencies of key
trading partners. Exchange controls
restrict foreign investment flows in and
out of the country.
Most investors consider Hong Kong's
regulatory system more independent and
transparent than Shanghai's, where rules
are more opaque and enforcement is
While Hong Kong's financial markets
regulator is an independent statutory
body -- the Securities and Futures
Commission (SFC) -- Shanghai's
regulator is part of the government's
HONG KONG, Dec 10 (Reuters) - The Chinese government's plans to develop Shanghai LEGAL SYSTEM
into a global financial centre over the next decade are set to challenge Hong Kong's foothold Hong Kong has an independent legal
as the region's financial hub. Yet in many areas the gap between the two remains wide. system and all laws are governed by an
autonomous constitution. English
CONCENTRATION OF FINANCIAL SERVICES continues to be the only medium in which
the majority of overseas judgements are
Hong Kong has a deeper pool of financial services than Shanghai with insurance, law, reported.
accounting and other professional service firms already well established.
In China, the National People's
Congress has the power to enact laws
The services sector in Shanghai is expanding quickly but greatly lags Hong Kong with its
and appoint the People's Courts. The
industrial sector still contributing 46 percent of economic growth compared with just 8 lack of an independent legal system can
percent in Hong Kong. be a concern for foreign investors in
getting a fair hearing.
Although Shanghai's stock market is worth more than Hong Kong's, with a market The income tax rate for people working in
capitalisation of $2.7 trillion compared with $2.3 trillion in Hong Kong, it has fewer listed
Hong Kong is a flat 15 percent,
companies. Hong Kong Exchange trades 1,297 stocks versus 869 in Shanghai. compared with 45 percent in Shanghai.
Hong Kong tax rates are low by OECD
Shanghai's exchange is more focused on retail investors -- 85 percent of the trading standards and there are no capital gains,
involves retail, according to Tjun Tang of Boston Consulting Group. Without a large, stable sales or VAT taxes. Taxes are also only
base of institutional investors, the market is subject to higher volatility. China is encouraging levied on income made in Hong Kong.
more foreign institutional investors to participate, however. Compared with the rest of China,
Shanghai has lower taxes for foreign
FUTURES MARKET invested companies, but the city does
have VAT, consumption, income and
Hong Kong has a mature and active financial futures market. It includes Hang Seng index business tax.
futures -- which has over 11,000 contracts -- H Share index futures, interest rate futures and
gold futures which started trading last year. LITERACY AND LANGUAGE
Shanghai doesn't yet trade financial futures. It does have an active commodities futures
Hong Kong and Shanghai are both
market, though. It currently trades copper, aluminium, zinc, steel, wire rod, rebar, natural highly literate societies, each with a
rubber, fuel oil and gold. It plans to launch stock index futures in the near future. literacy rate of 94 percent. Cantonese
and English are the official languages in
FIXED INCOME MARKETS Hong Kong, but English is regularly
Hong Kong is far more active in global bonds than Shanghai, where international bond spoken in the business environment.
trading is still very limited. Hong Kong sold $11 billion of G3 currency bonds in 2009 Mandarin is standard for business
compared with $982 million in Shanghai.
dealings in Shanghai.
However, domestic currency trading in Shanghai far surpasses that in Hong Kong, with yuan
trading much higher than domestic trading of the Hong Kong dollar.
CHINA STOCK INDEX FUTURES
CHINA MARKET HOPES FOR upbeat outlook for the strongly
recovering economy and corporate
BOOST FROM INDEX FUTURES But the index began showing signs of life
in late March, rising decisively above the
125-day average for the first time in two
months as institutional investors tested
the waters with purchases of selected
The index has since convincingly broken
free of that technical barrier and on
Thursday rose to its highest intraday
level in three months at 3,181.663 points.
Analysts expect the index to move
mainly in a higher 3,150 to 3,350 point
range in the second quarter, paving the
way for a rally in the second half of the
"The economic trend is seen steadily
improving this year, fuelling strong gains
in corporate earnings, so the index
should see a slow bull move heading for
3,500 points in late 2010," said Zheng
Weigang, head of investment at
Reuters Image Shanghai Securities.
By Lu Jianxin and Edmund Klamann Many market watchers had expected a The key to a blue chip-driven rally,
large cap-driven rally when the index however, will be their relatively modest
SHANGHAI, April 15 (Reuters) - China's futures plan was announced in January, valuations, analysts said.
stock market bulls have waited a long but an official clampdown on booming
time for a boost from the country's plans bank loans ended up putting a damper "The valuations of large caps, particularly
to launch stock index futures, and the on the market and spurring worries over banking stocks, have lagged far behind
pay-off is finally at hand. an earlier-than-expected exit from the overall market," said Cao Xuefeng,
China's economic stimulus. senior analyst at Western Securities in
The launch of futures trading on Friday is Chengdu.
tugging investor attention towards large- New bank lending has now been reined
cap stocks, whose valuations have in, however, with March data announced He noted that the authorities' clampdown
lagged, helping to nudge the long- on Monday coming in much lower than on liquidity earlier this year capped the
wavering stock market into a bullish expected, suggesting that the Beijing supply of funds available to investors to
trend for this quarter. authorities have achieved their goal and trade large-cap shares.
can take their time in considering harsher
"Institutions have been buying more monetary policy tightening such as Components of the CSI300 Index
large caps this week, conducting a raising interest rates. <.CSI300> , which covers the 300 largest
rehearsal for index futures trading. That firms by daily turnover and market
indicates the index should have more That should help the Shanghai capitalisation on the Shanghai and
room to rise," said Chen Huiqin, senior Composite Index establish firm support Shenzhen stock exchanges, now have a
stock analyst at Huatai Securities in at its 125-day moving average, a key forward price earnings (PE) ratio of 15
Nanjing. chart line used in the Chinese market to times forecast 2010 earnings, compared
delineate bullish and bearish territory and with a Shanghai market average of 23
Futures will be based on the CSI300 which offered stiff resistance until it was times.
<.CSI300> index of the most actively breached late in the first quarter.
traded and highly capitalised shares on The CSI300, which accounts for 60
the Shanghai and Shenzhen markets, "Historically speaking, around the world percent of the markets' combined $3.7
instead of the broad-based Shanghai the launch of index futures has typically trillion capitalisation, will likely be quickly
Composite Index <.SSEC>, the current heralded a bullish rather than bearish elevated to replace the Shanghai
mainland benchmark. stock run," said Tan Wentao, head of Composite as the Chinese market
research at HNA Futures in Shanghai. benchmark, in line with a global trend of
This will make market heavyweights a using blue-chip indexes, as index futures
stronger magnet for investor interest, The composite index spent most of the boost turnover in index heavyweights.
which now often gravitates toward first quarter between 2,950 and 3,100
speculation in small-cap shares that are points, below its 125-day average which "The index futures are expected to lead
favourites with retail investors. now stands at 3,125 points, as fears over to a fundamental change in the Chinese
an imminent normalisation of China's market. Trading will no longer focus on
ultra-easy monetary policy offset the small caps as it does now on many
days," said Huitai's Chen.
CHINA STOCK INDEX FUTURES
Until such changes come through,
WHY SHANGHAI NEEDS NEW however, many aspects of Shanghai's
financial markets won't develop quickly.
Consider the importance of index futures.
FINANCIAL PRODUCTS Shanghai set up the China Financial
Futures Exchange three years ago to
prepare for the introduction of index
futures, cash-settled futures contracts on
the value of stock market indexes. The
plan has been held back, though, along
with proposals for margin trading and
"These are very fundamental tools,
without which the only thing you can do
when stock prices are excessively high is
to sell," said Gao Zijian, analyst at
Oriental Securities Co. "Long-term
investors such as funds need such tools
to hedge risks, especially in China's
In addition to helping the market price
securities more efficiently, the change
would help create a domestic hedge fund
industry that could be worth trillions of
yuan, said Tang Xuan, an analyst at the
Shanghai Stock Exchange.
China's interbank market also lacks
financial tools to help companies
By Samuel Shen financial centre by 2020, sending a clear manage foreign exchange risks. That
signal that there's little time to lose in matters because as Chinese companies
SHANGHAI, Dec 8 (Reuters) - Last deregulating capital markets. venture abroad, their currency risk
January, China's Pure Heart Asset increases. Those risks could be better
Management Co took a radical step to "China should introduce a basic set of managed with yuan options, which would
guard itself against a possible crash in derivatives by 2015, and spend the next give companies the right to buy foreign
China's domestic A-share market, five years increasing liquidity, sorting out currencies at a pre-agreed exchange
liquidating all of its five domestic funds. problems and improving rules and rate on a specific date.
regulations," said John Tan, China head
But the privately managed firm took a of Global Markets at Standard Chartered. In the bond market, China could help
different tack with its Hong Kong-based develop derivatives by easing
hedge fund, choosing to keep the Those derivatives include options and government control on interest rates,
operation open. The reason, said a swaps in bond and foreign exchange thus giving market players more
company spokesman, was partly markets and margin trading and short incentive to hedge risks, Standard
because it was able to use financial selling in the stock market. Chartered's Tan said.
instruments unavailable on the mainland.
STILL WAITING Despite efforts to liberalise interest rates,
The firm has since opened a second loans are still priced according to
fund in Hong Kong and has shifted its The global financial crisis is one reason benchmark rates set by the central bank,
headquarters to the former British colony. market participants haven't seen such rather than by the interbank market,
products yet. The role of complex which partly explains sluggish trading in
Pure Heart's move underlines one of the derivatives in last year's financial train the domestic interest rate swap market.
factors behind Hong Kong's strength as wreck has made Beijing wary.
an international financial hub -- the "One doesn't need to hedge risks if
availability of risk-mitigating derivatives. Street protests by Chinese investors who interest rates are set by the government,
Shanghai, for the most part, lacks these lost money on a Shanghai-listed warrant so you need to give more power back to
tools, a major shortcoming as product last year also triggered fears that the market to develop IRS," Tan said.
sophisticated investors seek to manage fast-paced innovation would lead to
risks in the country's increasingly open social unrest. Richard Wu, Hong Kong-based portfolio
and volatile financial markets. manager of RCM, a unit of Allianz Global
"The financial crisis has stopped a lot of Investors, agrees. "If you look at
"If you're building a wooden house, things, because China is rethinking its financial centres such as Hong Kong or
simple tools are enough," said Joseph model after the Western systems in the Singapore, really successful innovations
Ho with French bank Societe Generale U.S. and Europe probably failed in many and derivative products are not directed
(SocGen) in Hong Kong. "But if you aspects," said Pascal Sefrin, China head by the government," Wu said.
construct a skyscraper, you need more of corporate and investment banking at
advanced equipment." SocGen. "The government's role is to build a good
infrastructure, but the last thing it should
China's central government vowed in Until such changes come through, do is to tell people what to do and when
March to make Shanghai a global however, many aspects of Shanghai's to do it."