Reuters: Futures and options on China’s small-cap CSI 1000 Index began trading in Shanghai on Friday, spawning new products and tactics from fund managers. The derivatives debuted on the China Financial Futures Exchange (CFFEX), offering investors options to control risks in a basket of 1,000 primarily innovative small tech companies. Four CSI 1000-tracking ETFs began trading Friday, seeking $1.18 billion apiece. According to the fund organization, two index-tracking hedge fund products were formed this month. The new derivatives will improve investors’ confidence in small caps, said Chen Hosting, option investment manager at Trading Art Association. Without appropriate hedging instruments, investors were hesitant to acquire risky small equity positions, Chen said. Guosheng Securities expects more CSI 1000 Index futures and options-based strategies, which might boost ETF size and liquidity. According to China’s securities regulator, CSI 1000 Index futures and options can help investors hedge risk. It’s good news for China’s hedge fund business, which uses derivatives to generate quantitative methods. Bridgewater, Winton, Man Group, and Two Sigma are all in China. E Fund Management Co, China Universal Asset Management Co, Fullgoal Fund Management Co, and GF Fund Management Co. Ade Chen, General Manager of Fund Investment, said ETFs can bring more money into growth companies and help ordinary investors acquire small-cap equities. He told Reuters his firm will hunt for arbitrage opportunities using CSI 1000 Index futures since small cap volatility might boost his strategy’s profitability. CFFEX previously tracked the mega-cap SSE50 Index, the blue-chip CSI300 Index, and the small-cap CSI500 Index. Zhang Chao, an analyst at GF Fund Management, said fund managers can use the new derivatives to construct structured products or as hedging instruments in a market-neutral strategy.
($1 = 6.7665 CNY)
(Headline corrected)
