China plans stock futures with common index

Shanghai, March 22 | Updated: Mar 23 2005, 05:55am hrs
Chinas stock exchanges plan to launch a common share index by April, paving the way for index futures to help investors such as Merrill Lynch & Co hedge risks, sources said on Tuesday.

Under a proposal submitted to the China Securities Regulatory Commission (CSRC) for approval, the index would comprise 300 companies listed on the exchanges in Shanghai and Shenzhen, two sources familiar with the matter said.

Industry executives have long argued that a lack of hedging instruments and a stringent ban on short-selling would hamper the $460 billion stock markets long-term development. They strengthened their calls after markets slumped 15% in 2004 to rank among the worlds worst-performing that year.

The index is likely to be launched late March or early April as part of efforts to introduce a set of financial products and offer institutional investors hedging tools, a source close to the exchange said.

The Shanghai composite index is regarded by domestic investors to be the national benchmark because the market in Chinas financial hub accounts for about two-thirds of both exchanges market capitalisation. But the proposed common index would be a true grouping of companies listed on both bourses.

Chinas financial community has discussed index derivatives since 2001, but such instruments have never taken off. Beijing has remained wary of legalising derivatives because of an eruption of speculation and corruption in the mid-1990s in treasury bond futures traded on the Shanghai stock exchange.