China Securities Journal: Initial Success Achieved in the Improvement of Continuity of Nickel Contracts

Updated on: December 27, 2017

Reported by Wang Zhuying

The market has operated smoothly since Shanghai Futures Exchange (“SHFE”) implemented the measures to enhance the continuity and the mobility of nickel contracts. We have seen a remarkable increase in trading and open interest level of the contracts other than the existing ones for January, May and September, together with a notable improvement in price continuity and intra-contract spread rationality as well as a continuous enhancement in contract continuity, which have effectively reduced the trading cost for industrial clients to participate in the non-dominant contracts, and also helped enterprises avoid the price fluctuation risk and lock on the normal production profit.

As a matter of fact, the contract series of domestic listed industrial commodities futures are usually one to twelve natural months, with an interval of one natural month for adjacent listed contacts. However, due to the influences of many factors such as variety characteristics, development path, market environment and trade habit, the rotating month interval of many products’ dominant contracts are four to six natural months, which not only deviates from the original contract design intention and industrial requirements, but impede the functioning of futures market to some extent as well.

A relevant head of SHFE said that, according to the uniform implementation of CSRC, the Exchange has made every efforts to optimize the continuity of nickel contracts on a trial basis by reducing the trading costs for the contracts other than those for January, May and September and strengthening the multiple measures such as market cultivation and investor education, in a bid to ameliorate the wicked problem of discontinuity in futures contracts and enhance the futures market’s capabilities to serve the real economy. Thanks to the unremitting efforts of the Exchange, initial signs of improvement have been seen as to the jumping and rotation among the dominant nickel contracts for January, May and September.

Recently, the mobility has dramatically increased in SHFE Nickel Contract for March (NI1803) and for July (NI1807). In vertical comparison, the average daily open interest and the average daily trading volume of SHFE Nickel Contract for March (NI1803) recorded 3,394 lots and 2,045 lots in November, 2017 (double-side counted, similarly hereinafter), 32 folds and 49 folds on a year-on-year basis, respectively. And the average daily open interest and the average daily trading volume of SHFE Nickel Contract for July (NI1807) hit 4,346 lots and 2,576 lots, 164 folds and 664 folds on a year-on-year basis, respectively. From a horizontal view, the open interest of SHFE Nickel Contract for July (NI1807) has been always higher than that of SHFE Nickel Contract for September (NI1809) since November 9,2017. After going into December, we saw the forward mobility in nickel futures that further gave an inclining tendency to the contract for July (NI1807). On December 26^th, 2016, the open interest of SHFE Nickel Contract for July (NI1807) reached 22,986 lots, significantly higher than that of SHFE Nickel Contract for September (NI1809), and a trading volume of 9,020 lots, 2.9 folds of that of SHFE Nickel Contract for September (NI1809).

The increasingly active SHFE Nickel Contract for July (NI1807) has added a tradable alternative contract to the market other than those for January, May and September. According to statistic data, the clients participating in the trading of NI1807 have increased steadily, and some industrial clients already attempted to establish the hedging positions in the same. In the future, the continuity of contracts is expected to be further improved substantially since the Exchange ramps up the work and encourage the market players to gradually develop the trading habit in favor of the continuity of contracts.

In 2018, SHFE will continue to strengthen the market research and industrial clients training, improve the trading rules and guide industrial clients to utilize the futures market rationally in a bid to optimize the investor structure in the market, continuously enhance the continuity of futures contract and further enhance the scope and extent of the futures market in serving the real economy.