Innovative Derivative

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ASSIGNMENT OF FINANCIAL DERIVATIVES

ON

LAUNCH OF

STOCK INDEX FUTURES (SIF) LAUNCH IN CHINA

*SUBMITTED TO: * * * * *SUBMITTED BY:

Nivesh Maheshwari

LHSB Q1804 A02

MBA (HONS)

The Shanghai-based China Financial Futures Exchange had launched the country's first stock index futures on April 16. The Shanghai Stock Exchange is the world's fifth-largest bourse, with a market capitalization of $2.6 trillion and average daily turnover of about 100 billion Yuan ($14.65 billion).

But China has no major financial derivative products, leaving investors without hedging tools and limiting the country's pricing power in the international arena. So China aimed to breathe new life into its stock market with the establishment of the *CFFE *(China Financial Futures Exchange) in 2006, although the launch of new products has been delayed by the global financial crisis.

DETAILS ABOUT THE PIONEERING INDEX FUTURES CONTRACT

UNDERLYING INDEX: The CSI300 Index, which is based on the 300 largest firms by daily turnover and market capitalization on the Shanghai and Shenzhen stock exchanges.

CONTRACT SIZE: 300 Yuan times the level of the CSI300. Based on the index's closing price.

MINIMUM MARGIN: 12 percent of the contract's value, meaning investors would have to put up more than 122,000 Yuan to trade one contract at current index levels.

TRADING UNIT: One lot, or one contract

MINIMUM PRICE CHANGE: 0.2 index points

DAILY LIMITS: 10 percent up or down from previous settlement price

CONTRACT MONTHS: Delivery month; next month; and the two subsequent end-of-quarter months.

TRADING TIME: Monday to Friday except public holidays.

9:15 am to 11:30 am (0115 to 0330 GMT)

1:00 pm to 3:15 pm (0500 to 0715 GMT)

LAST TRADING/SETTLEMENT DAY: Third Friday of the delivery month

DELIVERY METHOD: Cash delivery

TRADING CODE: IF

TRADING REQUIREMENTS

INDIVIDUALS

At least 500,000 Yuan on deposit for margin requirements...