China plans to soon launch equity index futures and options based on the CSI1000 index, which tracks 1,000 small caps listed in Shanghai and Shenzhen.
Draft regulations published by the China Financial Futures Exchange (CFFEX) on Wednesday could give foreign and domestic investors additional hedging tools and potentially lead to new investment products.
Currently, CFFEX only offers three types of equity index futures products, following the mega cap SSE50 index, the blue chip CSI300 index and the small cap CSI500 index respectively.
New derivatives will help diversify portfolios and make it easier to invest in small cap stocks, Huatai Futures said in a note.
China is deepening its capital markets
It also shows that China continues to deepen its capital markets, offering new tools to help investors mitigate risk. China has already allowed foreign investors to trade domestic index futures.
Chinese mutual fund companies have already launched more than a dozen funds following CSI1000, and the planned derivatives will likely increase the number of investment programs betting on small caps.
HuaAn Fund Management Co this month launched a CSI1000 tracking index fund that seeks enhanced returns.
China launched its first equity index futures product in 2010, but imposed draconian restrictions on index futures trading during the stock market crash of 2015.
It has gradually eased trading restrictions over the past few years, and the annual turnover of CSI500 index futures has already surpassed the 2015 peak, although trading of the other two index futures products remains weak.
The draft rules for new derivatives have been published on the CFFEX website and are soliciting public opinion until June 28.
• Reuters with additional editing by Sean O’Meara