The launch of stock index futures constitutes an important step in the development of Chinese financial markets. In recent years, the Chinese stock market has been characterized as one of the most dynamic, but also the most volatile, developing markets. It rose about 97 percent in 2007, then plunged more than 65 percent in 2008 and rebounded about 80 percent in 2009. Investors and regulators hope that the introduction of trading to futures on stock indices will help to increase the liquidity of the stock market, reduce market fluctuations and hedge risks. As financial futures have just been launched in China, the effect of financial derivatives trading on the underlying stock markets has attracted great interest from both investors and regulators. Considering the early stage of futures trading, related research and empirical results on developed derivatives markets will not only help evaluate the economic utility of derivatives markets, but also contribute to building a more efficient and stable market in China. This article purports to contribute to these objectives by introducing some empirical research on the Korean derivatives market and discussing the implications for Chinese markets. This article will mainly discuss the following two topics related to stock index futures. First, derivatives trading provides a strong welfare effect to the market and economic growth through the risk transfer mechanism and price discovery mechanism. Risk transfer allows market participants to increase their volume of activity. This offers a definite opportunity to develop the financial system and the macroeconomy. Additionally, in a market where information asymmetry and market frictions are recognized, derivatives trading provides a better opportunity to make money through information differences and therefore... in the middle paper ......ing, and its implications for the Chinese market. Chapter 5 concludes the article. Works Cited Brorsen, BW, 1991, Futures Trading, Transaction Costs, and Stock Market Volatility, Journal of Futures Markets 11, 153-163. 2008 Annual Report of the China Securities Regulatory Commission (CSRC), CSRCCox, CC, 1976. , Futures Trading and Market Information, Journal of Political Economy 84, 1215-1237Jae Ha Lee, February 2002, Index Arbitrage with the KOSPI 200 FutureLeading Futures Market KRX, Korea ExchangeRoss, SA, 1989, Information and Volatility: The No-arbitrage Martingale Approach to Timing and Resolution Irrelevancy, Journal of Finance 44, 1-17.Sung C. Bae, Taekho Kwon and Jongwon Park, 2004, Futures Trading, Spot Market Volatility, and Market Efficiency: The Case of the Korean Index Futures Markets, Journal of Futures Markets 24, 1195-1228