Manipulation Prevention and Hedging Effectiveness : Optimal Settlement Window Design for CSI 300 Stock Index Futures

This paper empirically evaluates the current 120-minute settlement window for China Securities Index 300 (CSI 300) Stock Index Futures. We assume that an exchange chooses the optimal settlement window to maximize its profit by increasing its revenue from trading volume and by curtailing its surveillance expenditure via designing contract specifications. Given that a longer settlement window may reduce the hedging effectiveness but result in cost saving, we find that the optimal settlement window is located between 0 and 40 minutes under varied unit investigation costs and suggest that it may be more appropriate to set a shorter settlement window