China's first financial futures product, a contract based on the index of the 300 largest Shanghai and Shenzhen-listed A-share companies, will operate under tight restrictions when the market begins formal trading late this year or early next year. The contract will be limited to a 10% daily fluctuation restriction – to which the underlying stocks are also tied – apart from on its last trading day. Contracts will be suspended during the day if they move more than 6% from the previous day's price. The strategy is indicative of China's cautious approach to financial futures, the South China Morning Post reported. Trading scandals and poor regulation were rife when the country last tried its hand at financial derivatives, which led to the closure of the market in the mid-1990s. Futures products are seen as vital to China's financial reform as they give investors a means of hedging their risk, effectively insuring against possible downturns.
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