Futures of Hang Seng China Enterprises Index (HSCEI), the major index that tracks the performance of Chinese enterprises (H-shares) listed in Hong Kong and included in the Hang Seng Mainland Composite Index will be publicly traded in Korea possibly starting late this year. It would be the index’s first overseas listing.

In exchange, mini KOSPI 200 futures products will be available in Hong Kong. Mini KOSPI 200 futures refers to the index based on 200 leading Korean stocks but the contract size is one fifth the actual KOSPI 200 futures index.

The Korea Exchange (KRX), the operator of South Korea’s stock market, signed a Letter of Intent (LoI) with the Hong Kong Stock Exchange on Tuesday. The two operators announced that they reached an agreement to push for cross listing of HSCEI and Mini KOSPI 200 futures. The KRX predicts that the cross listing would be possible late this year at the earliest through the approval from the financial authorities.

Previously, the KRX had concluded an agreement with the Eurex Exchange to cross-list their derivatives products on each other’s stock markets. Under the agreement, EURO STOXX 50 Index Futures products will be listed on the Korea`s main stock market for local investors from next Monday. As EURO STOXX 50 Index Futures, HSCEI futures would be traded in Korean currency during local business hour without having to exchange into the other national currency.

Accordingly, the risk management on equity-linked securities (ELS) would become easier as the cross listing could serve as a means to manage risk against shares in EURO STOXX 50 Index and HSCEI in Korea, which have been favored as underlying assets of ELS. The country’s equity-linked securities (ELS) issuance last year was mostly based on EURO STOXX 50 Index and HCEI.

The KRX expected that about 5 to 10 percent of hedging cost could be covered through trading derivatives of H-shares in Korea.

By Han Ye-kyung

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