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Know your onions or tears may flow

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THERE is nothing new about the alarm bells ringing over stock futures in Hong Kong, and the futures exchange is now determined to silence them.

In August 1928, the United States Congress was so concerned about the effect that trading in onion futures was having on the spot onion market that it banned the instruments under the Onion Futures Act (Public Law 85-839).

For this welcome perspective on the arguments now raging in Hong Kong, we thank Andy Kan Chi-nam of the Department of Finance and Decision Sciences at the Hong Kong Baptist College.

Mr Kan has produced a timely paper on the effect of futures trading on the Hang Seng Index, and looks particularly at the effect on its constituents.

Those who really want to understand what futures might, or might not, mean for Hong Kong's securities market should study both Mr Kan's conclusions and the consultation document issued yesterday by the Futures Exchange.

Mr Kan is, presumably, agnostic. The futures exchange would have to admit to having a vested interest in the launching of individual stock futures in Hong Kong, so it might be a teeny bit biased in its approach.

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