Risk Precautions To The Stock Index Futures Of Securities Companies

The Stock Index Futures is a kind of financial derivative instrument used to offset the systemic risks of stock investment and achieve the arbitrage. The Stock Index Futures have higher price discovery, and risk hedging, and market stability and other important function. The China Financial Futures Exchange launched China Shanghai Shenzhen 300 Stock Index Futures on April 16 2010. It marks a milestone in making China's financial markets more professional.However, the dual nature of Stock Index futures determines that, on one hand, it can be as a risk management instrument; while on the other hand, it can be also used to magnify the risk. As one of the principals in the Stock Index futures market, a securities company will confront various risks when engaged in the Stock Index futures market. How to minimize the risks is the primary problem that a securities company needs to consider before entering the Stock Index futures market.This paper first introduces the relevant domestic and foreign research achievements on financial futures market. Secondly, by describing the developing process of mature overseas Stock Index futures markets, and summarizes the external regulations, this paper explicates the cause of formation and characteristics of the Stock Index futures. And then, it demonstrates the risks that a securities company will face when it is engaged in the Stock Index futures business as the role an IB, a dealer in the futures market, and an equity investor. In the end, this paper proposes precautions and suggestions against such risks.Based on the research, this paper has found out that the primary risks to a securities company when it is engaged in the Stock Index futures business as an IB come from business operation. The company should constitute the risk management process for the securities company's IB business, and control internal risks. When the company is engaged as a dealer in market, as the hedgers and arbitrage, the main risks come from the market itself. The company can use VaR model and ES model to evaluate the margin amount and the market risks of open interest. When engaged as an equity investor, a securities company should constructing perfect corporate governance structure and well internal control environment in Futures Company, and constructing risks isolating mechanism between securities and futures companys.