Risks Of The Stock Index Futures To Securities Companies And Risk Precautions

The Stock Index Futures is a kind of financial futures which takes the stock index as the underlying object. It is considered as the most important and most successful financial derivative emerged in the tide of financing innovation in 1980's and has the shortest history but rapidest growth amongst all financial derivatives. 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 spot market in China has developed to a certain level. Meantime, various risk elements are accumulating as the market grows. The investors are in great need of a method for risk management. It has become essential for the China capital market to develop financial derivatives represented by the Stock Index Futures, in order to establish a multilevel capital market.However, the dual nature of the Stock Index Futures determines that, on one hand, it can be used as a risk management instrument; while on the other hand, it can be also used to magnify the risks. 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, including the risks when engaged as an introducing broker (IB), the risks when engaged as a dealer in the market, and the risks when engaged as an equity investor. 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, it introduces two risk models of financial products, which are used as the theoretical basis of the analysis in this paper. Thirdly, by describing the developing process of mature overseas futures markets and analyzing the status quo of the preparation for the Stock Index Futures deployment in China, this paper explicates the cause of formation and characteristics of the risks 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 of an IB, a dealer in the futures market, and an equity investor, respectively. In the end, this paper proposes precautions and suggestions against such risks, and presents a prospect of the development of the China Stock Index Futures market.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 optimize the risk point of each step of process, build risk management structure, 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 the market, the main risks come from the market itself. The company can employ SPAN system to ensure margin amount and avoid margin call, and use VaR model to evaluate the market risks of open interest. When engaged as an equity investor, the company should carefully select promising futures companies and guarantee the security of equity investment.As a new subject in the China financial derivative market, the Stock Index Futures will take active effect in promoting a rapid development of the financial market, enlarging the scale of the capital market, and protecting the security of the national financial market. It will also have positive effect on securities companies. However, profit always comes with risk. Risk is an important component of the securities market. Based on the study of the domestic and foreign risk theory models and the risk analysis of a special principal in the Stock Index Futures market, securities companies, this paper wishes to deliver feasible risk precautions suitable to the development of securities companies, and to be of help in supplying reference to other researches on this subject.