China has selected Industrial & Commercial Bank of China Ltd., Ping An Insurance (Group) Co., PetroChina Co. and Kweichow Moutai Co. as the first stocks in mock options trading, the Shanghai Securities News reported.
Investors will also be able to buy and sell options on two exchange-traded funds that track the 50 and 180 biggest yuan-denominated stocks in the Shanghai Stock Exchange, the newspaper reported, citing unidentified brokerages. The Shanghai Securities News is operated by the official Xinhua News Agency.
China is developing financial derivatives to help traders hedge against potential losses and to lure foreign investors after the benchmark Shanghai Composite Index (SHCOMP) slumped 33 percent since the start of 2010. The regulators started stock-index futures three years ago in Shanghai and resumed bond-futures trading in September after banning it for almost two decades.
“Stock options trading will serve the purpose of hedging for different types of investors in addition to the current index futures,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “It can attract more investors into the financial markets with reduced risks.”
Both call and put options will be allowed for trading in the trial with the minimum of each contract valued at around 100,000 yuan ($16,469), according to the Shanghai Securities News report. The transaction fee will be 2 percent, it said.
Single-stock options are contracts on individual stocks that give buyer the right, but not the obligation, to buy or sell a stock at an agreed-upon price within a certain period or on a pre-specified date.
“It will allow investors to hedge more effectively their positions,” said Gerry Alfonso, a trader at Shenyin & Wanguo Securities Co. in Shanghai. “As the Chinese capital market becomes more and more important as well as more global, it will need to have instruments similar to that of the U.S. or European stock markets.”
ICBC, the nation’s biggest bank, Ping An, the second-largest insurer, PetroChina, the No. 1 energy producer, and liquor maker Kweichow Moutai account for a combined 17 percent of the Shanghai Composite’s weighting, according to data compiled by Bloomberg.
The Shanghai Stock Exchange will start the single-stock options trial on Dec. 26 and may officially introduce it in April, the China Securities Journal reported last week, citing Xie Wei, deputy general manager at the bourse.
The China Financial Futures Exchange began mock trading of options on CSI 300 Index futures on Nov. 8, according to a statement on its website.
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at firstname.lastname@example.org