Chinese retail investors hit by big losses in ‘snowball’ derivatives
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Chinese retail investors who loaded up on derivatives that rely on calm market conditions have been hit with heavy losses, further undermining confidence in the country’s sputtering equity market.
So-called snowballs, which promise a stream of sizeable interest payments as long as stock indices trade within a certain range, have grown to an estimated Rmb320bn ($45bn) market in
The China Securities Regulatory Commission urged brokers in 2021 to strengthen their risk controls on snowballs and refrain from marketing them as fixed-income products. Still, the sector remains relatively loosely regulated.
The CSRC did not immediately reply to a request for comment.
Complex derivatives in products such as snowballs have backfired for Asian investors before.
In 2009 several major banks lost heavily after South Korean courts extricated hundreds of companies from contracts that could prove ruinous if the won moved outside set ranges.
South Korean retail investors’ appetite for so-called autocallables has also been blamed for hurting European stocks and depressing US stock volatility.
Additional reporting by Jennifer Hughes in New York
