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Shanghai - China will start trading its first stock options next month, according to the securities regulator, with state media saying Monday that the move could cause greater market volatility.
The Shanghai Stock Exchange will begin offering options on an exchange-traded fund from February 9, the China Securities Regulatory Commission (CSRC) said in a statement, which described the launch as a "trial".
"The trial of stock options... is of great significance to promoting the healthy development and enhancing the global competitiveness of China's capital markets," it said in the statement late Friday.
But the move might bring more volatility, state media said, in a stock market dominated by retail investors.
"In the short term, it may intensify market volatility," the National Business Daily said.
Separately, the 21st Century Business Herald said options would benefit the market in the long run by helping investors hedge against risk and discover value investing.
An option gives the holder the right to buy or sell an underlying asset but with the choice of whether or not to exercise the contract.
Investors will be able to trade options on the China 50 ETF (exchange-traded fund), which tracks 50 of the largest companies - mostly financial and resources firms - on the Shanghai exchange, the CSRC said.
The exchange currently offers stock index futures, but not options.
A minimum capital requirement of 500 000 yuan ($82 000) will be required for individual investors and 1.0 million yuan for institutions, according to rules published by the Shanghai exchange.
Analysts say China is moving slowly forward in diversifying its capital markets, only launching stock index futures in 2010 for investors to bet on future price movements.
In May, China's cabinet called for the development of financial derivatives in a "steady and orderly manner".
China's benchmark stock index rose more than 50% last year on hopes the government will unveil a fresh round of growth-boosting measures, but analysts question how the surge can be sustainable given the country's slowing economy.
