10 Chinas Capital Markets-The changing landscape Recent innovations Three recent developments which have contributed to the development of a more mature equities environment are the secondary chiNext market in Shenzhen, the launch of stock exchange futures and the allowing of QFil investors to participate in futures trading. ChiNext for start-ups Established on the Shenzhen Stock Exchange(SzSE)in October 2009, ChiNext was set up to list companies in high growth sectors such as technology and pharmaceuticals. While requiring a far lower level of capital than the Main board the sme board, chinext has stricter thresholds in other areas (such as for business operations, information disclosure and limitations on stock sales) in place for transparency and risk management purposes ChiNext is considered an important capital market instrument to broaden Chinas dustrial structure and promote economic reform, especially given the difficulties some start-ups still face in securing bank financing. At the end of 2010, 153 companies had successfully listed on ChiNext, with a total market capitalisation of RMB 737 billion, including RMB 117 billion raised from the public. The average P/E ratio on ChiNext reached 60, signaling investors'enthusiasm for the new board. 2 Launch of long-awaited stock index futures China finally granted investors access to stock index futures in April 2010, subsequent to the official introduction of margin trading and short selling. Investors are now able to profit from both gains and declines in the market through more ophisticated investment instruments. Despite high levels of interest from retail nvestors and need for a relatively low capital entry requirement, a relatively stringent set of rules was imposed including a threshold of RMb 500, 000 as the minimum deposit for a single trading account and a margin requirement of 12 percent. Eligible retail investors must also have prior experience with commodities futures trading or mock trading of index futures, reflecting the regulators cautious attitude while gradually opening up the new channel for local investors. Equity funds, balanced funds and capital preservation funds are now allowed to participate s well, though bond funds or money market funds will need to wait for further notice 12 Wind, CMS China Research Department. ip and a member firm of the KPMG network of independent mt KPMG Internatior Miss entity. All rights reserved.Recent innovations Three recent developments which have contributed to the development of a more mature equities environment are the secondary ChiNext market in Shenzhen, the launch of stock exchange futures and the allowing of QFII investors to participate in futures trading. ChiNext for start-ups Established on the Shenzhen Stock Exchange (SZSE) in October 2009, ChiNext was set up to list companies in high growth sectors such as technology and pharmaceuticals. While requiring a far lower level of capital than the Main Board or the SME Board, ChiNext has stricter thresholds in other areas (such as for business operations, information disclosure and limitations on stock sales) in place for transparency and risk management purposes. ChiNext is considered an important capital market instrument to broaden China’s industrial structure and promote economic reform, especially given the difficulties some start-ups still face in securing bank financing. At the end of 2010, 153 companies had successfully listed on ChiNext, with a total market capitalisation of RMB 737 billion, including RMB 117 billion raised from the public. The average P/E ratio on ChiNext reached 60, signaling investors’ enthusiasm for the new board.12 Launch of long-awaited stock index futures China finally granted investors access to stock index futures in April 2010, subsequent to the official introduction of margin trading and short selling. Investors are now able to profit from both gains and declines in the market through more sophisticated investment instruments. Despite high levels of interest from retail investors and need for a relatively low capital entry requirement, a relatively stringent set of rules was imposed including a threshold of RMB 500,000 as the minimum deposit for a single trading account and a margin requirement of 12 percent. Eligible retail investors must also have prior experience with commodities futures trading or mock trading of index futures, reflecting the regulators’ cautious attitude while gradually opening up the new channel for local investors. Equity funds, balanced funds and capital preservation funds are now allowed to participate as well, though bond funds or money market funds will need to wait for further notice. 12 Wind, CMS China Research Department. © 2011 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. © 2011 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10 | China’s Capital Markets - The changing landscape