Francis Repka sees bright prospects for the future development of the financial derivatives market in China. Repka, Vice President of the Asian Bond Finance Department of Societe Generale, says the situation in France just after the birth of derivatives was very similar to the situation in China today.

He believes that the framework of corporate management in China needs to continue to evolve. Further advances in the banking system, a fair and transparent transaction system, neutral taxation and a sound legal framework are all crucial to the development of a derivatives market.

Xinhua Finance: How does Societe Generale see the China financial markets today?

Francis Repka: China is a rapidly growing market that is opening up quickly. Societe Generale looks forward to having the opportunity to issue renminbi (RMB) derivatives in China. In the past, the targets of derivative issues were overseas investors. In the future, it hopes that domestic investors can also invest.

Before the introduction of stock index futures, what plans does Societe Generale have?

Societe General is very happy to see the market orientation and openness of the regulatory body. Societe Generale hopes that financial products and investor structure will both become more diverse. In 2003, Societe Generale established an asset management company with the Baosteel Group in Shanghai as a bridgehead for its China entry.

In the last few years, the Chinese capital market has improved greatly. The biggest improvement is that regulation has made the market much more transparent. At present Societe Generale is cooperating with GF Securities, aiming to bring products that sell well overseas into China.

Take covered warrants as an example. Covered warrants are issued by a third party financial institution. If market conditions are right, they can be offered. There is no need for them to be issued by a company. This will vitalize the market.

Societe Generale also sees very good prospects for QDII (Qualified Domestic Institutional Investors), hoping to be able to help Chinese investors convert RMB into foreign currency for investing abroad.

At present, domestic deposits are mostly in RMB. Through structured deposit and structured bills, Societe Generale can help investors spread risk.

In the next 10 years, what innovative products do you expect to appear?

At present, many products require investors to make a judgment on market direction. For example when a fall is predicted, you buy puts. When a rise is expected, you buy call products. This is similar to long and short positions on the futures market.

But in the future investors won’t need to judge direction, but range of fluctuation. For example, what will be the fluctuation in the gold price in the next three months, 5 percent or 10 percent? A profit will be made if the range is judged correctly.

Hybrid derivatives will appear. There will be two or more types, without a direct connection, but they can be designed to be together. For example, oil prices and sugar prices, or gold and a stock index. This kind of design across various markets can hedge risk but it also requires that investors have a higher professional level, being not just limited to a single market.

There will also be more customer-oriented financial derivatives. Customers will need to hedge risk in a certain area and the market will design derivatives in that area. There will be more related products, expanding from the current interest rate and exchange rate securities to more commodities like precious metals.

(Xinhua Finance)

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