12 December 2017
Mark Cheng

Mark Cheng

Mark Cheng - Boutique Advisory Firm

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RegBlog - Chinese Options Market

10 March 2015  |  3675 views  |  0

The Shanghai Exchange: China’s First Step for Options

After much speculation and delay, February 9, 2015 marked the day when China launched her first publicly traded stock options exchange in Shanghai.  On one hand, the world views China’s quasi free-market development as a “late bloomer” into an already established sector.  Others regard China’s entrance as an inevitable outcome from mounting global regulatory trading pressures, including collateral and margin rules, in other areas around the world.

China is not choosing to open their new options markets rapidly to global participants all at once with in a “big bang” approach.  Rather, China is being steadily cautious, by first offering participation rights only to professionals within the Chinese financial industry.  Because of the inherent volatility in options markets, they will open markets more liberally after gaining confidence in the process.  Tiered invitation into emerging markets is a traditional practice in China’s social capitalist economy.

In many large international strategic initiatives, China often sits on the side-line, quietly observing while others “play in the sand”, and formulates its own unique strategies that may agree or greatly differ from the Western world’s popular opinion.  This is an important difference that guides the way China’s attacks key issues and challenges when opening new markets.  Luckily, China is leaving behind past legacies and now has a much larger population of highly educated and increasingly sophisticated investors, which should make the adoption of options trading swifter than the opening of markets in the past.

China has watched closely as the world’s nations’ struggled with extreme market volatility and financial crisis.  After watching the experience of other global participants, China has decided to take a “crawl-walk-run” approach to options trading, in hopes of ensuring security and protecting its citizens from financial instability, and its traders from potential market chaos.  Much opportunity lays on the horizon as China implements its end-to-end solution for options trading.  This is only the beginning.  Informed spectators believe that sophisticated options trading will move quickly throughout this great land.  It will be fascinating to watch as its mighty government in Shanghai starts to wrestle with the same regulatory and technological challenges that these markets have posed for its Western neighbors. 

Mark Cheng, Principal Consultant

 

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Mark is an Managing Consultant at a boutique Advisory firm concentrating in Risk, Compliance, Regulatory Change, and Finance Transformation. Mark serves within Capital Markets, Bank Holding Companies,...

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