Shanghai Stock Exchange to Launch Options Trading on SSE 50 ETF

MarketsMuse update courtesy of AsiaAsset News

asia asset mgt logoThe Shanghai Stock Exchange (SSE) will unveil its first ETF option next month as a testing ground for the pilot stock option trading program in China.

The China Securities Regulatory Commission (CSRC) said it has authorized the SSE to launch the pilot program with an option based on the SSE 50 Index ETF as the debut product. It will land on the bourse on February 9. The index in question tracks the 50 largest and most representative stocks listed in Shanghai.

The Mainland’s securities watchdog said in a statement that stock options comprise of options based on individual equities and ETFs linked to share indices. “Individual stock options and ETF options are important types of options in international capital markets. They have a role to play in risk management which cannot be replaced by other financial vehicles,” the CSRC said. It added that turnover in options has reached a level similar to that in futures in recent years in terms of trade conducted on global exchanges, signaling a large demand for these products.

The CSRC initiated a one-month consultation on the draft rules governing the trading of stock options starting from December 5 last year. The effort formed the foundation for the launch of stock options, regarded as a crucial step in terms of financial innovation in China. One of the recent major breakthroughs in the country’s financial sector, particularly in terms of derivatives, was the launch of CSI 300 Index Futures in 2010. The launch of stock options combined with CSI 300 Index Futures will provide asset managers with more complex investing strategies.

The Shanghai bourse has launched simulated trading for stock options based on the ETFs linked to the SSE 50 Index and the SSE 180 Index, as well as a number of individual stocks. In May, a CSRC spokesperson said a study into the launch of individual stock options would only come after the regulator has concluded the pilot trading program for ETF options.