The real future is in Chinese futures
Through train scheme has diverted attention from derivatives offering broader opportunities
The "through train" that will link the stock exchanges of Hong Kong and Shanghai has become a focus of financial markets in both cities since its announcement in April.
While it is clearly a significant development, several questions remain unanswered.
How quickly will the system be in place? What quotas will be available? How can transaction certainty be achieved? How will the structural differences in settlement models between the two cities be resolved and managed?
The bigger issue is that the Hong Kong-Shanghai Stock Connect scheme has diverted attention from parallel developments in derivatives.
The Shanghai Gold Exchange - a spot and forward market - and the Shanghai Futures Exchange plan to launch new international markets in the Shanghai Free-Trade Zone for precious metals and energy, respectively.
The reality is that the FTZ is one of the core pilot experiments … to open China’s capital markets
Exchange-traded options are also due to go live later this year, and over-the-counter clearing is being introduced across a wide range of asset classes. Anticipated transaction volumes are likely to dwarf those of the through train and the underlying cash markets.