GEM ETF options listed on Monday! How to determine the five core points of “five one and no” individual investors can participate in trading rules, investment thresholds, etc.
Financial Associated Press, September 18 (Reporter Feng Qijuan) ChiNext ETF options will be listed on Monday. As the first derivative on the Growth Enterprise Market, it is also the first risk management tool for innovative growth stocks, achieving a breakthrough of zero ETF options in the Shenzhen single market.
The ChiNext ETF option-linked index is a ChiNext board index. The index has distinct characteristics of innovation and growth, strong market demand, and significant differences in risk characteristics from existing varieties.
On the evening of September 16, with the approval of the China Securities Regulatory Commission, the Shenzhen Stock Exchange decided to list and trade the GEM ETF option contract varieties (hereinafter referred to as GEM ETF options) on September 19. The contract subject is “E Fund GEM ETF”.
After the listing, the Shenzhen Stock Exchange will list the corresponding ChiNext ETF option contracts according to different contract types, expiration months and exercise prices. The first listed options contracts will expire in October 2022, November 2022, December 2022 and March 2023.
ChiNext ETF options are linked to ChiNext Index, focusing on innovation, growth and ETF targets related to small and medium-sized listed companies. Zhongtai Securities pointed out that the ChiNext Index is the first non-mainboard target since there were financial derivatives in China. Compared with several other indices, it has the lowest correlation with the main board. The listing of relevant options products fills the most important piece of the puzzle of investment tools and is of historical significance.
GEM ETF options not only provide effective risk hedging tools for GEM investors, but also cooperate with GEM ETF products and margin financing and securities lending business to help investors build more diverse investment strategies and meet investors’ risk management needs. It plays an active role in improving the stability mechanism of the stock market, etc., and is of great significance in the construction of the “Excellent One” Exchange and the development of “Dual Zones”.
Core concern 1: What are the institutional arrangements for ETF options on the Growth Enterprise Market?
An option contract, also known as an option contract, gives the option buyer the right to buy or sell an asset at a price agreed by both parties within a specified period of time.
On the whole, the institutional arrangements of the ChiNext ETF options and the listed CSI 300 ETF options are basically the same.
One is the contract rules. According to the “Basic Terms of ETF Option Contracts on the Growth Enterprise Market”, the contract types of “E Fund Growth Enterprise Market ETF” are call options and put periods, and the contract unit is 10,000 copies. The exercise method is the exercise on the expiry date (European style), which mainly adopts the method of physical delivery.
The minimum quotation change unit is set at 0.0001 RMB. The minimum transaction unit is 1 card. The contract expiry months are the current month, the next month and the following two quarterly months. For contracts in the same expiry month, the strike price sequence includes 1 at-the-money, 4 in-the-money, and 4 out-of-the-money.
The exercise method is European style, that is, the exercise method on the expiration date is adopted. The contract expiry date is the fourth Wednesday of the expiry month, and it will be postponed to the next trading day if it is a statutory holiday or a market closed day. The delivery method adopts the physical delivery method, and in special cases, the cash settlement method is used for delivery.
The second is the trading rules. There are four types of differences between the Shenzhen options trading system and the spot:
1) In terms of trading types, there are six trading types combined to buy, sell, cover, and open and close positions. In terms of order declaration, it is generally divided into limit orders and market orders, as well as some quotations and non-trading orders. Call auctions can only use ordinary limit orders, and market makers can use quotation orders.
2) In terms of trading time, options and spot are the same. 9:15 to 9:25, 9:30 to 11:30, 13:00 to 15:00 every trading day. The time for the construction and release of portfolio strategy margin business is extended to 15:15, and the time for declaration and exercise on the exercise day is extended to 15:30, but the time for combined declaration of exercise instructions is only from 15:00 to 15:30.
3) In terms of intra-day swing trading, option trading supports intra-day swing trading, that is, positions opened on the same day can be closed on the same day. In terms of positions, during the trading time period, two-way positions can be held. At the end of the day, the long and short positions of the same contract are hedged and the net position is taken. In-the-money contracts that are held to maturity need to be exercised on the expiry date.
4) In terms of price fluctuations, the Shenzhen stock market options trading implements asymmetric price fluctuation restrictions. The asymmetry is reflected in the fact that different price limits are set for contracts with different degrees of real and in-value, and the maximum increase and the maximum decrease are asymmetrical. For real-value and at-the-money contracts, the price rise or fall is the previous closing price of the underlying contract multiplied by the limit ratio of the rise and fall of the underlying contract. For out-of-value contracts, the maximum decline is the previous closing price of the underlying contract multiplied by the limit ratio of the rise and fall of the underlying contract, and the maximum increase is relatively small. The asymmetric price limit focuses on suppressing the over-hype of out-of-the-money contracts, especially deep out-of-value contracts.
The third is the market maker system. Shenzhen options trading implements a hybrid trading system combining market maker quotations and trader orders. Securities companies or risk management subsidiaries of futures companies that have been approved by the China Securities Regulatory Commission for stock option market making business qualifications can apply to become options market makers. SZSE conducts risk monitoring and stress tests on market makers, discovers abnormal risk situations in a timely manner, and takes risk control and regulatory measures in a timely manner.
Market makers not only ensure the liquidity, stability, continuity and fairness of the market through market making, but also meet the investment requirements of public investors. The market maker system can play a good role in providing market liquidity, maintaining price rationality, and improving market efficiency.
In addition, the Shenzhen options market has established a risk management system with margin, price stability and position limit system as the core, which can ensure smooth transactions and matching of futures and currents. At the same time, through forced liquidation and other risk control measures, hidden risks were eliminated in a timely manner and the smooth operation of new products was maintained.
Core concern 2: How to define the threshold for investors?
According to the “Shenzhen Stock Exchange Pilot Investor Suitability Management Guidelines”, individual investors, ordinary institutional investors, and professional institutional investors can all participate in Shenzhen stock options trading.
One is individual investors. For individual investors, participating in options trading should meet the “five and one no” conditions:
One is “assets”. 20 trading days prior to the investor’s application for account opening, the daily assets in the securities account and capital account shall not be less than RMB 500,000 (excluding funds and securities raised by the investor through margin financing and securities lending);
The second is “experienced”. Investors should open an account in a securities company for more than 6 months and have the qualifications to participate in margin financing and securities lending business or experience in financial futures trading; or open an account in a futures company for more than 6 months and have experience in financial futures trading;
The third is “knowledge”. Investors should have basic knowledge of options and pass relevant tests recognized by the Exchange;
The fourth is “experience in simulated trading”. Investors should have simulated options trading experience recognized by the Exchange;
The fifth is “risk tolerance”. Investors should have corresponding risk tolerance;
“None” refers to the absence of serious bad credit records and the circumstances under which laws, administrative regulations, departmental rules, normative documents and the business rules of the Exchange prohibit or restrict option trading.
Individual investors who have opened a derivatives contract account on the Shanghai Stock Exchange and meet the above “none” are deemed to meet the requirements of this article.
The second is ordinary institutional investors. For ordinary institutional investors, participating in option trading shall meet the following conditions:
(1) The daily assets in the securities account and capital account for the 20 trading days prior to the application for opening an account shall not be less than RMB 1 million per day (excluding funds and securities raised by the investor through margin financing and securities lending);
(2) The net assets shall not be less than RMB 1 million;
(3) Relevant business personnel have basic knowledge of options and have passed relevant tests recognized by the Exchange;
(4) Relevant business personnel have experience in simulated options trading recognized by the Exchange;
(5) There is no serious bad credit record and no laws, administrative regulations, departmental rules, normative documents and the business rules of the Exchange prohibit or restrict the option trading;
(6) Other conditions stipulated by the Exchange.
Ordinary institutional investors who have opened a derivatives contract account on the Shanghai Stock Exchange and meet the requirements in item 5 above are deemed to meet the requirements of this article.
The third is professional institutional investors. Unless otherwise stipulated by laws, administrative regulations, departmental rules, normative documents and regulatory agencies, professional institutional investors who participate in options trading do not need to conduct a comprehensive assessment.
Professional institutional investors include:
(1) Commercial banks, options management institutions, insurance institutions, trust companies, fund management companies, finance companies, qualified foreign institutional investors and other professional institutions and their branches;
(2) Securities investment funds, social security funds, pension funds, enterprise annuities, trust plans, asset management plans, banking and insurance wealth management products, and other funds or entrusted investment assets managed by professional institutions listed in item 1;
(3) Regulatory agencies and other professional institutional investors specified by the Exchange.
Core concern 3: How to conduct hierarchical management of investor authority transactions
Shenzhen Stock Options manages the rights of individual investors to participate in option trading in different levels. Individual investors who apply for trading rights at all levels should achieve the required qualified scores in the corresponding knowledge test, and have corresponding options simulation trading experience. Investors who have opened a derivatives contract account on the Shanghai Stock Exchange can apply for the same level of trading authority as the Shanghai Stock Exchange on the Shenzhen Stock Exchange. The trading authority levels applied by individual investors are divided into first-level, second-level, and third-level trading permissions:
Individual investors with primary trading authority can open a corresponding amount of covered positions when they hold the underlying of an option contract, or open a corresponding amount of put option buying and open positions when they hold the underlying of an option contract, or open positions with a corresponding amount of put options. The contract held is closed or exercised;
Individual investors with secondary trading authority can conduct transactions corresponding to primary trading authority and open positions by buying;
Individual investors with third-level trading authority can conduct transactions corresponding to the second-level trading authority and open positions by margin selling.
Core concern 4: The option product system is the first to add innovative growth elements
GEM ETF options are the first derivatives on the GEM and the first Shenzhen single-market options, adding a touch of innovation and growth to the domestic derivatives system. The ChiNext ETF option-linked index is a ChiNext board index. The index has distinct characteristics of innovation and growth, strong market demand, and obvious differences with the risk characteristics of existing varieties, and has three major advantages:
First, the market features of “excellent innovation and high growth” are prominent. The constituent stocks of the ChiNext Index are 100 high-tech companies with large market capitalization and good liquidity, strategic emerging industry companies and growth-oriented innovative start-up companies. The total market value is 6.18 trillion yuan, and the market value coverage of GEM is 52.49%. The proportion of strategic emerging industries and high-tech enterprises in the index is close to 90%. The total operating income of the index constituent stocks in 2021 will be 1.13 trillion yuan, a year-on-year increase of 25%. The characteristics of innovation and growth are distinctive.
Second, the market demand is strong. The ChiNext Index is a mature index that has been running smoothly for more than 12 years. As of the end of August, a total of 14 ChiNext ETFs have been listed in the market, with a scale of 26.934 billion yuan of related index funds, and the demand for risk management is strong.
The third is distinctive style. The overlap between the GEM index and the CSI 300 index is only 12%, and the index return has a low correlation with the CSI 300 index. More diversified and refined risk management tools can also facilitate investors to build richer future investment strategies.
“E Fund ETF” was established in September 2011. As of September 15, the fund size was 14.8 billion yuan, and the average daily turnover this year has exceeded 1 billion yuan. According to the announcement, E Fund has 18 years of professional experience in index investment and has formed a relatively complete product line. As early as 2006, E Fund launched the first ETF “E Fund Shenzhen 100 ETF” on the Shenzhen Stock Exchange.
It is reported that “E Fund ETF” will become the first single-market ETF option target in Shenzhen. E Fund Fund said that the company will do all relevant work to ensure the stable listing of options contracts.
Zhongtai Securities pointed out in a relevant research report that the ChiNext Index is the first non-mainboard target since there were financial derivatives in China. Compared with several other indices, it has the lowest correlation with the main board. The listing of relevant options products fills the most important piece of the puzzle of investment tools and is of historical significance.
Guotai Junan Futures believes that there are currently few products related to the ChiNext Index, and the listing of the “E Fund GEM ETF” has increased the choice of investors’ asset allocation.
Core concern five: ETF options have 3 major advantages
ETF options are a mature risk management tool in the capital market and play an important role in the long-term and stable development of the capital market. The listing of ETF options on the ChiNext Board on the Shenzhen Stock Exchange will further enrich the capital market risk management tools, improve the spot market stability mechanism, enhance market vitality and resilience, promote the development of the ETF market, and guide long-term funds to enter the market.
In promoting the stable and healthy development of the capital market, ETF options have three major advantages:
The first is to facilitate the development of diversified products to meet the needs of risk management and wealth management. The rich ETF option products will help institutions to develop more return-enhancing and risk-neutral products, which are in line with different investors’ return expectations and risk preferences, and effectively meet the needs of diversified risk management and wealth management.
The second is to provide insurance for spot goods to enhance market resilience. ETF options have unique insurance functions and are refined risk management tools. Investors buy put options to carry out hedging transactions, which not only provides protection for spot positions and reduces the selling pressure in the spot market, but also retains the possibility of gaining spot gains, which helps investors to hold the spot for a long time and establish long-term investment. concept, enhance the resilience of the spot market, and promote the long-term healthy development of the capital market.
The third is to attract long-term funds into the market to help enterprises develop better. The launch of ETF options will help funds increase the allocation of corresponding ETF products, promote the development of the ETF market, help relevant innovative growth, small and medium-sized listed companies attract stable medium and long-term investment groups, and obtain better growth and development opportunities.
Before the launch of GEM ETF options, Shenzhen Stock Exchange ETF options had already laid a solid foundation. In December 2019, the Shenzhen Stock Exchange ETF successfully launched the CSI 300 ETF option varieties, which have maintained safe and stable operation in the past three years.
Up to now, ETF options on the Shenzhen Stock Exchange have performed outstandingly in terms of trading activity, number of market participants, and functional performance.
First, the operation is safe, stable and orderly. The trading activity was reasonable. The cumulative trading volume of Shenzhen options reached 200 million, with an average daily trading volume of 320,000 contracts and an average daily position of 350,000 contracts. The trading positions were relatively stable. Investors participated rationally, and institutional transactions accounted for 66%.
Second, the market foundation has been continuously consolidated. Market participants actively participated, with 120 options operating institutions (including 89 securities companies and 31 futures companies), 20 market makers (including 15 main market makers and 5 general market makers), and the cumulative number of investors opening accounts was 23 million households.
The third is to gradually play the function. Options promote the development of the spot market. After the listing of CSI 300 ETF options, the number of CSI 300 ETFs increased by 9, and the overall scale increased by 13% to 135 billion yuan. The insurance function has initially appeared, with more than 10,000 investors participating in hedging transactions, with an average daily insured market value of about 3 billion yuan.
The Growth Enterprise Market is the innovation capital center of the Guangdong-Hong Kong-Macao Greater Bay Area and the Socialist Pilot Demonstration Zone. The ecosystem of the capital market will help improve the “dual-region” financial service capabilities.