Development Of China's Stock Index Futures

KCBT first began to trade value line index futures, the first of its kind of stock index futures in the world, on Feb 24th 1982. At that time these stock index futures were traded in Japan, Hong Kong, and London, Singapore etc and become a very important investment and trade tool. These futures have been useful in avoiding risk and speeding up circulation through the market. The organizations involved have been major players in the international capital market since the 1990s which has resulted in the internationalization of the money market. Stock index futures is one of the most active futures still trading after more than twenty years of development and has been named as "the most exciting renovation made by the last century's money market". With the development of the Chinese economy, it has become necessary for China to begin trading the stock index futures in the near future. First of all, the Chinese stock market has been playing a great role in the national economy after several years of development but most investors do not understand how to avoid the high risk of the immature stock market. Sooner or later, Chinese money market will be open to the international market after China's entry into WTO. Completing the stock market's system is urgently required to confront more competition and higher risks.I have been studying the experience of trading stock index futures in the main securities markets of the world and have drawn the conclusion that China now has the basic required conditions in place to trade stock index futures. However, a lot of preparation still is needed, including issuing the standard index, correcting relative law and designing contract etc.There are four parts of my article. The first part is a brief introduction of stock index futures. I also give the reasons why it is necessary and urgentfor China to begin to trade stock index futures according to an analysis of the current Chinese market situation and the history of futures markets in US and Hong Kong. In the second part, I point out that it is practical for China to trade stock index futures soon based on the analysis of the current situation of the Chinese securities market and Chinese law compared to the situation of other countries at the time they began to trade stock index futures. In the third part, I focus on a discussion of some methods to design the stock index futures' contract and to standardize the stock index after studying other countries' practices.The fourth part is the main emphasis of my paper. I discuss and predict some issues which could occur in the future such as: the impact of the initiative stock index to the current securities market, the delay caused by the lack of a system to control the short seller, the influence of capital in the securities market, the analysis of investment possibilities in the future securities market, the possible barriers to the stock index futures issue resulting from an immature Chinese stock market and risk avoidance. I hope this discussion will be a valuable reference to all who take an interest in the stock index futures.