FTSE Xinhua Index (FXI) company will file complaint against mainland China with World Trade Organization
iShares: FTSE/Xinhua China 25 Index (FXI on NYSE) has soared over 30% from US$66 to about $86 since we first presented our analysis of Top Chinese Investment Picks back in June.
Now some bad news.
The Shanghai Stock Exchange (SSE) has successfully sued FXI which publishes an index for a futures contract of Chinese shares traded in Singapore. The financial index company was found in violation of its contract with the exchange. FXI was ordered to pay a $20,000 fine, and its contract with the SSE was cancelled.
FXI is a joint venture owned by the Financial Times, the London Stock Exchange, and Xinhua Financial (a Tokyo-listed financial information and media group).
FXI says that the court action threatens the free-flow of publicly available financial information from mainland China. A formal complaint against China will be filed with the World Trade Organization.
The company sees no need for a legal agreement with the SSE as to how FXI chooses to licence their index to third parties including other exchanges, particularly since the index is based on FXI's own mathematical formulas. As reported by the Financial Times November 1, 2006 edition, Morgan Stanley, Standard & Poor's and Dow Jones all publish China indices without an agreement.
In the coming months, Chinese authorities plan to launch stock index futures on the mainland. Perhaps Shanghai's real motivation is that China wants more control - and a bigger piece of the stock index futures pie for itself.
