China to start stock index future trades

China will begin trading of stock index futures on April 16th, marking the long-awaited milestone in the development of China's capital markets. The move is expected to lay the groundwork for more innovations down the road.

According to the China Financial Futures Exchange, the first contract will be based on the CSI 300 index, which tracks the 300 biggest stocks in Shanghai and Shenzhen exchanges. The value of the futures contracts are points of the CSI 300 multiplied by 300 yuan.

The exchange will start trading four types of contracts, which will be settled for May, June, September and December. Settlement day will be the third Friday of each month. Investors must pay cash deposits equivalent to 15 percent of the contract value for May and June contracts, and 18 percent for September and December contracts.

Stock index futures, which are agreements to buy or sell an index at the present value on a future date, will provide investors a badly needed risk-hedging tool in a volatile market.

Analysts say the potential for Chinese stocks is substantial, and the futures market might grow several times over the physical market. Last year, the Shanghai Stock Exchange overtook Tokyo to become Asia's biggest and the world's third largest stock market by trading volume.