Stock Index Futures? Not Ready Yet

Rhetoric is not enough. After expressing their enthusiasms in stock index futures, Chinese brokerage firms and fund companies remained absent from the trading floors. Despite the market expectations for these institutional investors to induce steady stream of liquidity to stock index futures market, private equity and hedge funds are the ones who poised to positions to benefit from the arbitrage.

Venus Fan 17 May, 2010 | 0:00
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Rhetoric is not enough. After expressing their enthusiasms in stock index futures, Chinese brokerage firms and fund companies remained absent from the trading floors. Despite the market expectations for these institutional investors to induce steady stream of liquidity to stock index futures market, private equity and hedge funds are the ones who poised to positions to benefit from the arbitrage.

As of May 16th, only one brokerage firm –GF Securities, passed the board meeting and applied for the license to trade stock index futures. And that is few steps away from setting up the transaction account.

Although Chinese mutual funds share the same goal with the hedge funds to seek for absolute returns, they are rather timid when it comes to the use of stock index futures. Compared to their hedge fund counterparts, the practice is obscure and the exposure remains low. It is mostly commonly seen in index funds to enhance their index tracking performance. In addition, there is the industry wide problem – quantitative investment professionals are few and far between. 

Most Chinese mutual fund companies have not started to recruit quantitative investment professionals until China’s capital market embraced the beginning of stock index futures trading. The demand for quantitative investment professionals has risen sharply year to date and the lucrative packages are offered for capable individuals. But there are very few quantitative engineers and people with operations experiences in quantitative investment. The authority didn’t make it easy either. The fund companies intend to trade sock index futures must meet the requirement to have both research and operations teams with hands-on quantitative investment experiences. Given the circumstance, it is unlikely to see any of these Chinese fund companies be able to trade stock index futures by the end of this year. 

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