Red-chip index futures, the new futures contracts to be launched by the Hong Kong Futures Exchange next Friday, will have a margin requirement of $29,000 per contract, much higher than the level required for Hang Seng Index futures. The level for the new contracts, based on mainland-backed, Hong Kong-based companies known as red chips, represents 17 per cent of the contract value compared to 9 per cent for Hang Seng Index futures, which require a margin of $60,000. The futures exchange emphasised that the margin was the minimum required for the strongest clients, and exchange members should actually set higher margin requirements according to their clients' individual circumstances. Initial margins are the deposits clients provide to brokers when they buy or short sell futures contracts. The exchange also announced that the maintenance margin for the red chip index would be $23,200. That means that when the value of a contract drops according to market changes and the margin requirement falls to a level of $23,200, investors will need to put more money in to cover their position. The spread rates are $2,500 for initial margins and $2,000 for maintenance margins. One broker said, despite the fact that the margin percentage for red-chip index futures was high, he believed the products would be welcomed by retail investors because the monetary level of the margin was just half that for the Hang Seng Index, which was considered affordable for retail investors.
