China Financial Futures Exchange (CFFEX) has raised the margin of all listed index futures from 20% to 30% forcing a number of market players to stop quoting over-the-counter (OTC) options. The increase is aimed at further curbing speculation around index futures, said Xiao Jun Zhang, a spokesperson for the China Securities Regulatory Commission (CSRC) at a press conference.
“We have stopped launching OTC options on the CSI 300 index,” said Guo Qiang Wang, portfolio manager at Shenwan Hongyuan Securities. “With the increased cost of hedging plus clustered volatility, it is difficult for us to make profit from the trade and we are pulling out for now,” said Wang.
As one of the few listed derivatives in the market, CSI 300 futures are the raw material behind CSI 300 OTC options. The margin increase is making hedging difficult, and several companies have stopped quoting on OTC options, said Yang Lv, senior associate at Citic Securities.
The short-selling of index futures has been partially restricted, said Lv. “You are only allowed to short if you have the equivalent amount of shares in hand,” he said. “For example, if we are holding 100m units of shares in hand, then we can short index futures no bigger than 100m units.”
Following the introduction of the new margin level, the “abnormal trading” of index futures has dropped from 600 transactions per product per day to 100, according to the regulator.
According to the SRP database, 30 products linked to the CSI 300 index were launched in August, which suggests that the impact of the margin rise on issuance may show in September.
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