Hong Kong Exchanges and Clearing Limited (HKEX) announced on Friday the launch of its first A-share derivatives product, the new contract of which will provide international investors with effective risk management tools, reflecting the increasing global reliance on Stock Connect to access Chinese mainland's burgeoning equity markets and consolidating Hong Kong's status as an international financial center, according to regulators on both sides.

HKEX has entered into a new license agreement with MSCI, a leading provider of mission critical decision support tools and services for the global investment community, to launch a futures contract based on the MSCI China A 50 Connect Index, which tracks the performance of 50 key Shanghai and Shenzhen stocks available via Stock Connect, HKEX said in a statement on Friday.

This offshore sector-balanced China A-share index futures product will be launched on October 18.

HKEX CEO Nicolas Aguzin said, "Today's announcement marks a key step forward in furthering our plans to build an offshore mainland equities derivatives suite in Hong Kong. This exciting news further strengthens our long-term partnership with MSCI and reflects our commitment to developing Hong Kong as Asia's premier derivatives hub, expanding the breadth and depth of our product offering in Hong Kong."

"As the global markets leader in the Asian time zone with a unique role connecting China and the world, we believe this new product will act as a key risk management tool for investors in managing their A-share equity exposure," said Aguzin.

The MSCI China A 50 Connect Index is designed to have a comprehensive representation of the Chinese economy by including 50 stocks of the largest stocks in the China A-share large-cap universe, and by targeting at least two stocks from each sector. The index comprises 50 Stock Connect eligible shares, which historically has a high correlation to the performance of main MSCI A-share indices.

The China Securities Regulatory Commission (CSRC) expressed support for the launch of the A shares index futures on Friday, saying that the move will help enrich the risk management tools for foreign investors to invest in A shares, further attract overseas long-term funds to allocate A shares, and consolidate and maintain Hong Kong's status as an international financial center. 

The Chinese securities regulator said it will steadily advance the deepening reform and opening-up of the domestic stock index futures market, and promote the coordinated development of onshore and offshore products and markets of A shares index futures.

Hong Kong's securities and futures markets regulator on Friday approved the launch of the A shares index futures contract.

"The new contract is a major milestone in the development of Hong Kong's capital markets, strengthening its position as a financial risk management and China market access center of international significance," said Ashley Alder, CEO of Hong Kong's Securities and Futures Commission (SFC), according to an SFC statement.

Since its launch in 2014, Stock Connect, the landmark mutual market access program linking the Hong Kong and Chinese mainland equity markets, has become the key channel for international investors to access the A shares market and has helped facilitate the inclusion of Chinese A-shares into key global indices.

Stock Connect trading reached new records in the first quarter of 2021, with average daily turnover of northbound and southbound trading significantly increased to 126.8 billion yuan ($19.5 billion) and $60.8 billion, respectively.

Investors can access margin trading and stock borrowing if they qualify for trades under the stock linkups, meaning they can establish both long and short positions. But when it comes to index future options, China A50 futures options on the Singapore Exchange are mostly referred to as an indicator of mainland stock price moves.

The CSRC and SFC have established close regulatory cooperation arrangements on cross-boundary derivatives, including supervisory information sharing and enforcement assistance.

The arrangements will help maintain market integrity and enable the two regulators to better assess and facilitate the long-term development of the A shares index futures contract, the SFC said.