"There is an ample room for the development of ETF in China," said President Zhang Yujun of the Shanghai Stock Exchange (SSE) yesterday at the seminar on development of exchange-traded fund (ETF) and its risk control. ETF is not only a tool for passive management, but will also contribute to the active management of asset allocation in the industry, the risk control of derivative market as well as the risk management of pension and hedge fund. As a risk management tool, ETF has great potential in China.
According to Zhang, the development and risk control of ETF will involve every aspect of the market, including the index companies, exchanges, fund companies, depository and clearing corporations and regulators, all faced with lots of issues, including expertise, product development preparation, asset management ability, market promotion, and risk control in particular. It is essential to further strengthen each preparatory work for a rapid development of the ETF market.
Zhang said that the risk control would be the central theme of the seminar. As a risk management instrument, ETF can not be developed in a stable and fast manner until the risks are under control. He gave solutions to risk control in the following five aspects.
First, to control the risks in index companies, efforts should be made to see whether the compilation method for indices is scientific, rational, practically based and adapted to the realities of China's market, as well as whether the index companies have provided adequate index space for the market. Fund companies are now very enthusiastic about the development of ETF, but index development is still a weak link given the requirements for product development. Index companies should meet the market's growing demand for index development while at the same time earnestly study the risk control in index development, compilation and operation.
Second, fund companies should enhance risk control in operation of index funds by means of enhanced infrastructure, professional talents, sound information disclosure mechanism as well as scientific and rational business processes. To that end, they must increase the input in technology and human resources and streamline business processes in developing ETF. Another responsibility of fund companies is to assist index companies in preparing customized indices. Although there is a large number of ETFs on the current market, among which six are on the SSE, all the products on the fund market are identical in nature. It is fund companies' responsibility to market the concept of personalization to provide customized products, and train individualized ETF managers for better customer cultivation and education.
Third, it is the exchange's duty to reinforce risk control of ETF in terms of management of index operation and maintenance, monitoring of fund operation and maintenance, and formulation of technical standards of the industry. For instance, it should strengthen verification of fund net value calculation, make out a set of certification standards for securities dealers' technology systems, especially those for ETF, as well as make clear the qualification details for engaging in ETF business.
Fourth, depository and clearing corporations are advised to provide high-quality and efficient market settlement services to bolster the development of the industry under the premise of risk control.
Fifth, it is proposed that the management should give greater emphasis on and promote the development of exchange-traded fund.