Financial innovations in China need safeguarding
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What's also worth noting in the approval is the high hopes placed on the innovation: "The launch of Broker Financing Bills and the Stock Index Futures are both major steps to consolidate the financial system, verify the modes of business conducts, perfect the market function and stabilize the market operation, in a joint effort to ensure the healthy development of the capital market." These two advancements, hailed as "milestones" by foreign media, are bringing an end to the 20-year long unilateral practice in Chinese financial market once for all.
The Chinese stock market has relied on spot trading, which makes steep rises and sharp plummets common phenomena. Furthermore, due to the unvaried trading mode, intra-market readjustment becomes difficult; so the market relies solely on external capital to quell the turbulence, which is unhealthy for its long-term development.
Conversely Stock Index Futures convert the unilateral trading to a bilateral one. By increasing momentum in the market, investors tend to have more ways and greater options for profit making. Predicting the index growth trend after a fashion, a characteristic of Stock Index Futures, can hedge the market risks, therefore subdue the excessive turbulence and fluctuation. The introduction of Stock Index Futures complies with the market demand, which also accompanies Broker Financing Bills, in jointly generating more opportunities, which is beneficial for both for investors and the market itself.
Innovation has been a principal with overriding priority. The next question is how and when to make innovative changes. The market development, condition of the country, and the general public's attitude and familiarity with the stock market could all play vital roles in innovation.
Currently the capital market is claiming an increasingly higher status in the Chinese financial market. Numerous surveys on general bank depositors' opinions showed that the public is inclined to invest in the capital market. After the worldwide financial crisis, which revealed financial market's weakness, the capital market is readily accepted as a reference to fend off the risks.
Lots of insiders think a financial crisis is a best instruction material for investors. In Chinese market, derivative financial products like Stock Index Futures and Broker Financing Bills are limited in number; therefore the investors don't have enough first-hand experience to understand how these products can check and balance the market risks, or understand the products themselves.
