China publishes draft rules on stock options, signals launch is near

SHANGHAI - China's main bourse and stock watchdog have separately published draft rules for trading of stock options and the public has up till early January to air their views, signalling a launch is drawing nearer after months of preparation.

Chinese regulators say they will launch a series of stock and commodity options in the coming year, and exchanges are already conducting simulated trading for some contracts.

An option is a contract to buy or sell a product at a predetermined price at a predetermined time in the future.

By purchasing such contracts, investors are able to lower risk of future price plunges or leaps. At the same time, speculators can make profits by betting on the right direction.

The Shanghai Stock Exchange said in the draft rules published over the weekend that the options will cover selected listed stocks and exchange-traded funds (ETFs).

Trading hours for the options will be slightly longer than those for the underyling stocks, and the exchange will set a daily limit of 10 per cent in either direction for both put and call options.

The bourse did not give a list of the underlying stocks. Analysts have long anticipated that it will designate only counters in the blue-chip SSE 50 and SSE 180 initially.

That is because Chinese regulators are pushing investors to focus more on blue chips, which have a more stable price performance. This compares with a previous investment culture that speculated on small loss-making firms.

Options typically help boost interest in large-capitalised stocks.

The China Securities Regulatory Commission in its draft rules said only stock exchanges have the power to launch options based on individual stocks. It also set requirements for brokerages and futures firms to trade them.