Hong Kong exchange to launch futures trading for HSI Volatility Index

David Nealis President of Blue Bridge

Fear Index Futures Keenly Awaited

Market participants are eagerly awaiting the launch of Hong Kong Stock Exchange (0388) futures on the so called Hong Kong fear index as it provides a hedge against market swings.

The bourse is to launch futures trading for the HSI Volatility Index next Monday - the first such product in Asia, which will offer a hedge against market price swings. The index, based on Hang Seng Index options prices, is a measure of expectations of market volatility within a month.

"Vega [volatility] hedging with VHSI futures can reduce counterparty risks [of swaps], while it does not create delta risks [price movements] as you hedge with options," HKEx head of trading Calvin Tai Chi-kin said.

HKEx will educate investors about the product. From April, the stock exchange will collaborate with five brokerages to provide simulation trades for clients.