OREANDA-NEWS. Today, SGX launched the SGX MSCI China Free IndexSM futures and options contracts. Denominated in USD, the contracts track the MSCI China Free Index SM, which comprises large and mid-cap companies listed outside of mainland China. 

MSCI China Free Index SM has a broad representation of sectors including financial, information technology and consumer companies.  The SGX MSCI China contracts therefore provide international investors with risk management tools linked to the key sectors that are driving China’s economic growth today. 

On the first day of trading, the average bid-ask spread was 2 ticks, narrowing to less than 10 basis points during Hong Kong trading hours. Approximately US$8m in notional value was traded. Dedicated market makers, which consist of banks and proprietary trading firms, were providing liquidity throughout the trading session.

The SGX MSCI China contracts have also been certified by the Commodity Futures Trading Commission (CFTC), enabling U.S. investors to directly trade them from within the U.S.

SGX has seen significant success of its SGX FTSE China A50 Index Futures, which has grown to become the most liquid offshore listed China A-share product. This proven franchise provides the strong foundation for SGX to enhance offshore access for investors, by including a broader range of China-linked shares through MSCI China Index futures. 

Participants trading the SGX MSCI China contracts may benefit from up to 60% in margin offsets with the SGX FTSE China A50 futures, and approximately 40% with the Nikkei 225 and MSCI Taiwan contracts.

Correlation of MSCI China Free IndexSM 

  

Top 10 Component Stocks in MSCI China Free Index

Index

Correlation (%)

  

Ticker

Stock

Wt (%)

Hang Seng China Enterprise Index

98.2

  

700 HK

Tencent Holdings Ltd

12.3

Hang Seng Index

97.2

  

941 HK

China Mobile Ltd

8.3

FTSE China 50 Index

98.9

  

939 HK

China Construction Bank

6.3
 

 

  

1398 HK

ICBC

4.6

FTSE China A50 Index

71.0

  

BABA UN

Alibaba Group Holding

4.5

MSCI Taiwan IndexSM

71.0

  

3988 HK

Bank of China Ltd

3.8

Nikkei 225 Index

62.8

  

2318 HK

Ping An Insurance Group Co of China Ltd

2.9

MSCI Emerging Market IndexSM

87.8

  

BIDU UW

Baidu Inc

2.9

S&P 500 Index

37.3

  

883 HK

CNOOC Ltd

2.6

Nasdaq 100 Index

31.4

  

386 HK

China Petroleum & Chemical Corp

2.1

Source: Bloomberg, 31 December 2015 to 29 April 2016                Source: Bloomberg, 3 May 2016

Sector comparison between MSCI China Free and HSCEI Indices

             

Source: Bloomberg 3 May 2016

Michael Syn, Head of Derivatives at SGX, said, “The SGX MSCI China contracts respond to a growing need for broader risk management, price discovery and benchmarking tools that reflect China’s economy today. The CFTC certification of the contracts will enable us to meet U.S. investor demand for access to China’s growth opportunities, and further expand our international network.”

“We are delighted that SGX has chosen to introduce options and futures contracts based on the MSCI China Free Index.” said Theodore Niggli, Asia Head of MSCI Index Products. “The recent inclusion of US listed Chinese securities into this index has made it more representative of the breadth of China’s equity markets.”

The SGX China Index Futures contract has a multiplier of US$5, which translates to a notional value of approximately US$28,500, assuming a futures price of 5700 index points. The minimum price fluctuation is 2 index points (with an equivalent tick value of US$10). Trading hours are from 9.00am to 4.20pm, with a T+1 session from 5.00pm to 2.00am on the next day.  The extended trading hours enables investors to explore trading opportunities across the cash (H-shares, p and red chips and ADRs) and futures markets.