Introduction And Contract Design Of Stock Index Futures In China

Since the first introduction in the 1980's, the stock index futures have become a very important research area. With comparative and positive analysis, the study mainly discusses about the necessity and feasibility of introduction to China and its contract design. There are four parts in the study as follows: concept and function analysis of stock index futures, description of overseas stock index futures, the necessity and feasibility of stock index futures introduction to China and contract design according to China capital market reality.First, by analyzing the overseas stock index futures, the study concludes that there are four stages before the introduction of futures to a country. (l)When a financial market develops to a certain degree, there is a strong desire for futures. (2)The investment strategy of stock index futures can satisfy the market need. (3)Market and law conditions keep up with the demands of futures introduction. (4)Futures contract items can make investment strategy realized and at the same time avoid and control risks in advance.Second, after comparing current problems of Chinese capital market and the introduction background of the overseas stock index futures, the study gives evidences that there is an urgent need of the introduction of futures to China. The main evidences are listed in the following. Both big systematic and non-systematic risks exist in Chinese stock market. From 1991 to 2001, the average fluctuation of Shanghai and Shenzhen general stock index is 37.80% and 27.55%. Since it is impossible to do investment simultaneously in both local futures market and spot market, as the result of risks, investors suffer from disastrous loss. With lack of variety in their business, the security companies have small capacities in risk resistance. Once there is a weak market, they will suffer from loss.Third, the study demonstrates that China already has the basic conditions for the introduction of stock index futures, but at the same time, she should pay more attention to the futures risk control. These conditions include: Turnovers in both Shanghai andShenzhen stock market surpass lOOObillion. The variety, number, and scale of institutional investors increase greatly and continuously. Chinese stock market and futures market are under unified supervision of Securities Regulatory Commission. And there are more systematic and scientific regulations in the futures market.But at the same time, there are still drawbacks to the introduction of futures, including lack of law guarantee and suitable stock index. Although it is not so difficult to solve these problems, it is fairly necessary for China to choose proper time and prepare the risk control methods before the futures are introduced, for the futures have high risks in themselves.At last, with the experiences of overseas futures contract design, the study specifically designs Chinese contract according to her capital market conditions. There are thirteen items, including proper stock index and deposit in security. The study suggests risk control consideration in each contract item.