Marked volatility in index futures

Activity hints of spike in speculative trading in June; officials say foreign firms not short selling

Stock index futures saw higher trading volumes during the second half of last month along with a marked increase in speculative trading, the China Financial Futures Exchange said on Friday.

The futures bourse, where three stock-index futures contracts are listed, plans to adopt a system of differentiated charges based on trading volumes to make index futures speculation more costly and said the system would be implemented before Aug 1.

According to the CFFEX statement, the average daily trading volume of futures contracts of CSI 300, SSE 50 and CSI 500 indexes from June 15 to Thursday was 3.25 million contracts, up 24 percent over the levels seen during the first 15 days of June.

It also said quantitative trading has increased substantially, with the trading volume accounting for more than 50 percent of the transactions, something that has greatly influenced the stock index futures market. The position size of stock index futures fell to 237,000 contracts during the period, which indicates short-term speculation is rampant, the report said.

The bourse said institutional investors - securities, fund, insurance and trust companies, QFIIs and RQFIIs - increased their short positions substantially during the period, along with a slight increase in the long positions.

Individual and legal entities continued to hold a relatively higher number of long positions during the 15-day period. However, both the short and long positions of individual investors decreased, while in the case of legal entities there was an increase in the long positions and a reduction in short positions.

The CFFEX statement said it would streamline stock index futures contract and trading rules further and tighten vigilance on unusual transactions. The top 50 investors of each stock index futures in terms of position size and trading volume would be subject to scrutiny, the bourse said. Earlier the CFFEX had suspended 19 accounts from undertaking short sales for a month, Reuters reported.

The nation's market regulators had unveiled measures earlier this week to revive the sagging capital market and pledged to investigate market manipulation after the benchmark Shanghai Composite Index plunged 29 percent from the June 12 peak.

Stock index futures rose in Friday's pre-market trade, while cash equities slid during the opening. "They are trying to stop people from shorting futures," said Hong Hao, China equity strategist at Bocom International Holdings Co in Hong Kong. "If they cannot hedge they may choose to sell cash equities. This will create further volatility."

Short selling allows traders to wager on rising and falling markets and can be used as a tool to hedge their holdings. In China, it is allowed on futures contracts linked to the CSI 300, SSE 50 and CSI 500 indexes.

The bourse said it has checked stock index futures trading by 38 foreign institutional investors and did not find any instance of "large-scale" short-selling, it said in a statement on Wednesday. The exchange started the investigation after rumors that foreign institutions including Goldman Sachs Group Inc had shorted A shares through futures.

Bloomberg contributed to this story.

caixiao@chinadaily.com