The arrival of exchange-traded funds (ETF) options on the SSE 50 Index ETF and SSE 180 Index ETF set to be launched in early August in China’s derivatives market has been well received by market players as they will help to grow the pie bigger for structured products.
The Shanghai Stock Exchange (SSE) released guidelines in July about the risk control, collateral management and position limits of ETF options in preparation to the launch.
“We have just started issuing equity-linked notes but all the products in the market are linked to the CSI300 index so far,” said Yang Lu, senior associate of equity derivatives business at CITIC Securities. “After the introduction of the ETF option, we may also issue notes that are linked to the SSE 50 index and SSE 180 index.”
Earlier this year, the market geared up for the launch of stock index options, but China’s regulator seems to have turned its back on them by giving the green light to ETF options first.
Lu said that the reason for the regulator’s choice may be related to the fact that ETF options have a low risk of price fluctuation and are easier to manage.
“No matter if it is an ETF option or a stock index option,” said Lu. “The introduction of the new derivatives will prompt the market by offering more investment choices and help the pie of structured products market grow bigger.”
According to the regulator’s guidelines, investors are divided into individual and institutional investors. The maximum volume of a single option is no more than 500 creation units for individual investors and 1,000 creation units for institutional investors.
Huaxia SSE 50 ETF is the first ETF in China and has CNY21bn ($2.7bn) of assets under management, while the size of Hua An SSE 180 ETF is CNY12bn ($1.5bn).