Standard & Poor's is planning to launch equity indices on China's domestic A share market and will license firms to structure derivatives references to the instruments. "As these are product-driven indices, derivative products are definitely part of the game plan," said Carmen Lai, regional marketing manager in Hong Kong. He said options, futures and index-linked notes are most likely.
S&P is developing two indices, the S&P/CITIC A-Shares 300 and the A-Shares 50. The index methodology is still being finalized, but the A-Shares 50 will not just be the largest 50 stocks by market capitalization, liquidity will also play a major role, according to Lai. The A-Shares 50 is likely to be the basis for the vast majority of derivative-linked structures on the indices. S&P, in conjunction with CITIC Securities, plans to launch the indices before the end of the first quarter.
FTSE/Xinhua already has a series of A-Share indices, which have been attracting greater interest as more investors look toward the mainland (DW, 12/15). An equity derivatives head said having multiple indices could be good for end users as they will have more choice. The credit derivatives market, however, has showed that dealers prefer one index because it creates more liquidity to hedge the instruments.
