Research On The Level Of Treasury Futures Margin To Enhance Market Liquidity

At present, due to market segmentation and other reasons, the liquidity of China’s bond market is insufficient, which greatly restricts the further development of the bond market. In addition, with the deregulation of the loan and deposit interest rates, China has realized the liberalization of interest rates. In the long run, interest rate volatility will increase and the interest rate risk will increase correspondingly. On the one hand carrying the mission of activate the bond market, on the other hand bearing with the expectation of the market participants to hedge and the government to reduce the interest rate risk, treasury bond futures in officially start to trade on the China Financial Futures Exchange, in September 2013.The buyer of treasury bond futures should buy the treasury bond with the agreed price in the future. Highly standard, treasury bond futures is the most important exchange traded intreast rate futures. Common strategies are speculation, arbitrage and hedging. Arbitragers connect the spot and future market through future-spot arbitrage, effectively promoting the discovery of interest rates. Hedging participants sell futures contracts to hedge the spot interest rate risk and offering hedging products is the most important function of government bond futures market. In summary, treasury bond futures is used to evade the interest rate risk, discover interest rate price, improve spot market liquidity. Through these functions economic resources could be better allocated and economyhiger promoted.High liquidity is the basis for the realization of these functions, a key to the development of bond futures market, and the important factor to determine the survival of futures contracts. However, at present, the exchange of treasury bonds is not active enough, and the liquidity is not high enough. In 2015, the total volume of stock index futures is 34.19 trillion yuan and the treasury bond futures 0.6 trillion yuan, only 1.76% of the former; on the spot market, at the end of 2015, the circulation market value of CSI 300, SSE 50, CSI 500 is 2.89 trillion yuan, the annual turnover of the 149.9 trillion yuan, with total volume of 9.5 trillion yuan in 2015, and the market value of treasury bond by the end of 2015 is 0.95trillion yuan with total volume of 0.97 trillion yuan in 2015. It is found that there is still much room for development of treasury bond in both spot and future markets.But there is no mature empirical study yet on the liquidity of treasury bond futures market in China. Providing a unique empirical perspective, this paper explores the liquidity of treasury bond futures market, which is of both practical significance and theoretical value.Firstly, through the model derivation and time series regression inverse relationship between treasury bonds futures margin level and market liquidity is found. Secondly, use Monte Carlo simulation and Exponentially Weighted Moving Average method to predict the price volatility of treasury bond futures. Lastly, through value at risk model a relatively stable margin level is designed. The empirical results show that the robust margin level is lower than the actual margin level, which can effectively improve the liquidity of treasury bond futures market through the appropriate reduction of margin level.