Date：February 10, 2015
Source:Shanghai Securities News

Yesterday, with the launch of SSE 50 ETF options, a total of eight market makers participated in the trading with the trading volume accounting for more than 70% of the total. Currently the Shanghai Stock Exchange (SSE) has adopted the mixed trading system of introducing the competitive market making under the auction trading system, with each option contract seeing the market making conducted by two brokers.
On the basis of the auction trading, the market makers continue to offer buying and selling prices of the option contracts to the investors, and accept the investors’ requirements for buying and selling at respective prices. Under the mixed trading system, the market makers do not have special status, as the bilateral quotes of the market makers and the orders of the investors will jointly participate in the centralized matching, and the trading will still run in strict accordance with the principle of "priority to price and priority to time ".
On the launch day of the SSE 50 ETF options, participating in the market were mainly individual investors, proprietary trading of brokers, market makers and other institutional investors, but the trading volume mainly came from proprietary trading of brokers, market makers and other institutional investors. The disclosed data show that the whole launch day recorded a total of 542 accounts participating in the options trading, including 492 individual investors and 50 institutional investors. However, in terms of the trading volume, the institutional investors took up to 80.2% of the trading, including 70% transacted by market makers. The market makers played a significant role of stabilization at the launch of the options.
Satisfactory Performance in All Aspects
According to the disclosure of the SSE, eight market makers presented satisfactory performance in all aspects on the launch day of the SSE 50 ETF options. On the one hand, most of the market makers reported high rates of contract coverage and participation, with the bid-ask spreads generally between 2% to 3% and the biggest contract spread only standing at about 5%, and the adequate quotes of the market makers for each contract at all price levels provided the market with sufficient depth.
On the other hand, the stages of call auctions at the opening and closing also saw the full participation of the market makers, who provided the market with sound price benchmarks in the aspects of both the number of the minimum quotes and the spreads. In addition, during the whole trading session, the prices of the 40 option contracts showed a high degree of agreement with the theoretical values, with the deviation only at 1.47%, and none of the contracts recorded the phenomenon of price inversion. Moreover, with the factor of transaction cost excluded, there was nearly no space for parity arbitrage.
According to the analysis of an institution source, as the spreads of the contracts are formed by the quotes of all market participants, the spreads of brisk contracts generally stood at about 1% yesterday, lower than the 10% deviation level on the mature markets, showing reasonable market width and good liquidity. On the very day, the 50 ETF rose by 1.75%, and the price of the briskest dominant contract of call option went up by 1%, with the weighted average of the call option contracts up 0% and that of the put option contracts down 1.3%, representing the put-call option ratio expected by the investors for the underlying securities market at 0.66 (the figure less than 1 points to optimism about the market), which showed the satisfactory futures-spot interaction.
According to the performance of the options on its launch day, the 50 ETF options played a significant role in improving the confidence in the spot market. As the market heard much negative news last weekend, especially the news that the securities companies are prohibited from sale of umbrella trust by proxy and the regulators reiterated the threshold for access to the business of margin trading and securities lending, the market was widely expected to see substantial decline in general quotation on Monday. However, actually, the Shanghai Composite Index closed up 0.62% and the SSE 50 Index rose 1.79% (which is much higher than the Shanghai Composite Index), showing that the market has generally recognized the 50 ETF options and China had the similar situation to the mature markets in launching the stock options, which is of great significance for boosting the liquidity of the securities market and the investors’ confidence.