S&P, Citic join forces for index-based trade
Jamil Anderlini in Beijing
Venture born as China is set to launch new equity products
Standard & Poor's and state-owned Citic Securities yesterday announced the formation of a joint venture to develop indices for the mainland securities market.
The new venture comes as China prepares for the introduction of new products including index-based futures and a new futures exchange.
The firm, Standard & Poor's/Citic Index Service, is a 50-50 joint venture but will be run mostly by Standard & Poor's.
'Our business model is very much working with financial institutions to build products that use indices, like index futures and options, index swaps, index funds and exchange-traded funds,' said Bob Shakotko, managing director of index services at Standard & Poor's.
'We believe the Chinese equity market is at the point of doing more in this area.'
None of these products exist in China, but the State Council recently approved the establishment of a futures exchange in Shanghai this year. On January 1, the cabinet also revised securities laws allowing derivatives products that went into effect after a decade-long ban.
'There are still issues that need to be addressed including asset quality and insufficient capitalisation, particularly in the banking system,' said Kathleen Corbet, Standard & Poor's president.
'But while there is much more that needs to be done, we are encouraged by the reform that has been taken in the capital markets.' Citic and Standard & Poor's have launched several indices together but are set to increase their benchmark products as global demand for Chinese securities heats up.
Citic Securities chairman Wang Dongming said the expected resumption of initial public offerings would be a big opportunity for the joint venture.
'The resumption of new offerings is dependent on two factors - the pace of reform and pressure from the market,' he said. 'Citic Securities is very hopeful that initial share offerings and refinancing will resume in the second quarter.'