On Operating Mechanism Of Shanghai 5OETF

ETF has undergone rapid development globally since it was first formally put into market by American State Street Corporation and American Stock Exchange (AMEX) in 1993. According to the latest statistics by Barclays Global Investors, there are altogether 1,768 ETFs in the world by August 2009. These ETFs are operated by 93 Assets Managing Corporations globally with total assets reaching＄8,570 billion. There are 7 ETFs in our country after 4 years of development with 5 ETFs in Shanghai Stock Exchange Market and 2 in Shenzhen Stock Exchange Market. At present the net assets of the 7 ETFs in our country is about RMB400 billion and the percentage out of Mutual Fund is 1.6%; while in America the percentage is 8.6% in 2007.Shanghai 50 ETF is the first ETF issued in our country. It takes 5 years from its conception to.its being put into the stock market. Shanghai 50 ETF was formally traded in Shanghai Stock Market on February 23,2005 and on that same day the turnover rate is about 20% with the turnover reaching over RMB11 billion. Later Shengzhen 100ETF, Shanghai 180ETF and small plate ETF were issued in 2006. Three years later, Central Enterprises ETF and Corporate Governance ETF were issued one after the other in 2009. Since fund contract has become effective, Central Enterprises ETF and Corporate Governance ETF increased a little owing to the short time of being put into market, all the other 5 ETFs have increased tremendously by December 31,2009. Low in number, small in scale, and scarce in variety, our ETF market is still developing and we still have a very long way to go compared with the mature markets in foreign countries. Therefore, the research for ETF not only has the theoretical significance, but also the practical reference value.This thesis first introduces the basic theories of ETF, its development and innovation, its operating mechanisms and its arbitraging strategies, at the same time outlines the general situation of the first ETF in our country--Shanghai 50ETF. Selecting the trading data from January 5,2009 to June 30,2009, this thesis provides the demonstration analysis of the tracking error, discount rate, premium rate and arbitrage of 50 ETF with the emphatic analysis of the incident arbitraging mode concerning the merger and acquisition of Shenzhen Development Bank by Ping An of China. The operations research of Shanghai 50 ETF shows that Huaxia Fund Managing Corporation's running of Shanghai 50 ETF is fairly successful with stable operation, low tracking error and reasonable discount rate and premium rate. At the same time the operations research of Shanghai 50 ETF also shows that there is little chance of arbitrage under normal circumstance. The profit margin is not high even if the operation on arbitrage is successful, but higher profit than normal arbitrage can be gained under the incident arbitraging mode if judged precisely. The positive impacts brought by the Shanghai 50 ETF to the Chinese stock market and some suggestions with regard to the ETF policies that can facilitate the development of ETF in our country are summarized in the last part of this thesis.