China is taking steps to regulate the derivatives market, targeting “snowball” derivatives.
Authorities have instructed some of the largest brokerages to halt any increase in their net exposure to over-the-counter derivatives involving domestic A shares, including snowball products.Snowballs have seen a surge in interest.While the restrictions are said to be temporary no indication was given for an end date on curbs.
Snowball derivatives, which function similarly to exotic options, offer bond-like coupons (but much higher) if the stock index remains within a certain range, with potential returns increasing the longer the investment is held.
This article was written by Eamonn Sheridan at www.forexlive.com.