The Development Of ETF Funds In China

ETF had thei r genes i s i n 1989 with the TIPS which was i ssued by the Toronto Stock Exchange in 1989, then the SPDR-tracks the S&P500 (Standard & Poor's 500 stock i ndex)-launched by the American Stock Exchange, referencing the structure of TIPS. Since then, similar products follow on, and steps in the maturity stage with a rapid development. Excluded earlier in the Canada and the United States of America, ETF was traded in succession in the United Kingdom, Germany, Switzerland and Netherlands in Europe and the Japan, Hong Kong, South Korea Singapore, Taiwan and China in Aisa. In the past 30 years, not only in asset scale but also in quantity and the types of products ETF had a development with astonishing speed, and had become one of the most important investment products in current international financial markets.As of 2009, there are total 4008 ETFs in the global market, with an increase of 50.79%, close to 13,000 billion U. S. dollars in asset, holding nearly 90 ETF managers in the global market, and traded on 42 Stock Exchange. By 2011, global ETF assets will reach two trillion U. S. dollars, based on continued growth in the number of investors, the relaxation of laws and regulations, the rapid development of various stocks index and bonds index, the exploitation and increase of ETFs and other reasons, becoming one of the most successful innovations of the fund.After 10 years'development, China Securities Investment Fund has achieved certain achievements in the function and structure, and basically stepped into a healthy development track; various types of funds emerged in endlessly, and had a substantial increase in fund scale. However, compared to the developed market, its development still is relatively slow. Since 2004 - the China's first ETF launched, there were 9 ETFs at the end of 2009, less than 100 billion U. S. dollars in the total size. The existing ETF has also shown some disadvantage like styles convergence and single species. It still has along way to go compared to maturity markets overseas.For the current situation of Chinese ETF products, the paper recommends the following aspects to take measures to create a good development for the ETF market environment.First, to create a rich market index. Good target index is one of the key success factors for ETF; the lack of market index undoubtedly constrains the development of ETF and whose diversity cannot be played. At present, the index resource to gain market recognition is scarce that leads to struggle for the exclusive right to use the excellent index around fund management companies. At last this status will lead that ETF resources could not be effectively utilized. If launching an index system to cover the full market, fully using existing resources, no limiting in geographical restrictions and including the high quality stock recognized by investors in the Shanghai and Shenzhen stock markets into the range of index compilation, the development of ETF will be promoted. Second, to speed up the development of stock index futures, ETF index warrants and other related derivative products. Index derivative product is not only to conducive to the prosperity of China's stock index futures market, but also to promote the distinctive development of the ETF in the aspect of exploitation, innovation and risk prevention. Again, to advance ETF cross-listed trading among the Chinese and different oversea markets. Through the cross-listed trading, ETF can be used as a good path for international capital investment and promote the healthy development in China. Finally, to relax the conditions of issuing ETF and encourage fund companies to exploit more extensive type of ETF products. At the same time, we should also strengthen the marketing promotion and investor education, so as to enable more investors participate in the ETF's investment.Structurally, the paper is divided into 7 chapters and 4 parts. The first part incl uding the first chapter and the second chapter, which is an introduction section of ETF Products, highlighting ETF definition, history, types and characteristics, paving the way for the entire article. The second part is third chapters, and introduces the development of ETF in international and domestic environment. The third part is the main part of the article and makes up of the following three chapters, which indicates the necessity, feasibility and risks of ETF in China. Among them, Chapter IV illuminates the necessity to accelerate the development of ETF, respectively from the different roles played by China's capital market, managers and investors. Chapter V illuminates the feasibility of developing ETF at the current stage in China. Chapter VI lists the facing risks of ETF, including four aspects of tracking error, settlement, management and operation, and counterparty. Chapter VII is the last part of this paper, and which are some recommendations for the development of ETF in China.With the gradual deepening of China's financial system reformation and more and more financial innovation products, ETF products will have a broader development in the next few years, and will have the trend of diversification. Based on the ETF development history and data in Europe and the United States and other developed countries, this paper analyses indepth the operation mode of ETF, arbitrage mechanism, characteristics, effects and risks, discusses the development prospects of ETF, and strives to promote the development of ETF in China.The main innovation in this paper is to combine the ETF development experience and achievements in the international market, start from the ETF product on its own factors and related impact, illustrates the necessity and feasibility to accelerate the development of ETF products in the current market environment. Besides, the paper also indicates the facing risk in the process of promoting the development of ETF, assimilating the experience and failures of foreign ETF products.