The CSI 300 Index, compiled and maintained by China Securities Index Co., Ltd., has 300 constituent stocks. With reference to the mature compiling idea from the international market, the index was compiled by adopting such advanced technologies as weight based on adjusted capital stock, classification and sample adjustment buffer. The CSI 300 Index was chosen as the underlying index of the first stock index futures contract of the China Financial Futures Exchange (CFFEX) for the following three reasons:

(1) The futures contracts with the CSI 300 Index as the underlying index can become the flagship in China’s stock index futures products series in future and have the potential of taking the lead on the market. Since the index was launched on April 8, 2005, the market proved that the index is greatly representative and investible. After the CSI 300 stock index futures products are launched on the market, the CFFEX may gradually release the index futures products for different markets and industries according to the market need to form a series of index futures products satisfying the client needs at different levels;

(2) The CSI 300 Index has a wide market coverage and decentralized weight of major constituent stocks, which can effectively prevent the possible index manipulation on the market. According to statistics, the total market capitalization coverage rate of the CSI 300 Index had been about 74.25% and the free float market capitalization coverage rate had been about 62.85% as of June 18, 2007. The accumulative weight of the top 10 constituent stocks had been about 20.44%, while that of the top 20 constituent stocks had been about 31.26%. The high market coverage rate and the decentralized weight of constituent stocks determine that the index is more resistant to manipulation.

(3) The balanced industry distribution of the constituent stocks of the CSI 300 Index makes the index more resistant to the cyclical industry fluctuation. So the futures choosing it as the underlying index will achieve a good hedging effect and satisfy the clients’ risk management needs. The constituent stocks of the CSI 300 Index cover many industries such as energy, raw material, industry and finance, with relatively balanced free float market capitalization coverage rates of companies in different industries. Therefore, the index is resistant to the cyclical industry fluctuation and has a good hedging effect.