Futures Daily:  China’s First Important Industrial Product Option Set for Its Debut with the “Copper Futures Option” Project Approved

Updated on: November 20, 2017

Reported by Zhao Bin
 

Recently, the project of copper futures option, the first industrial product option in China, got approved. This implies industrial product options are expected to be launched gradually after the listing of agricultural product options such as soya bean meal and white sugar.

According to the industrial sources, the approval of copper futures option project marks the formal kick-off of the first important industrial product option in China, which ushers in the era of futures, options and diversified derivatives in China’s industrial product floor market after the evolved market embracing both futures and options to end the history merely with single futures instrument.

The copper futures option to be listed is based on the matured underlying market. As one of the earliest metal products integrated with the global market, SHFE’s copper futures has, after years of growth, become more and more influential around the world in recent years. It is characterized by substantial futures trading scale, good liquidity and relatively matured investor structure, which are generally accepted by the industry.

“Copper Futures Option has always been one of focus of attention in the market,” said Jing Chuan to our journalist, who is Deputy General Manager of Zhongda Futures. From a perspective of industry development, the healthy development of our financial market relies on the increasingly enriching risk hedging instruments. SHFE launches the copper option to not only satisfy the needs of China’s upstream and downstream enterprises of the copper industrial chain for hedging and price risk mitigation, but give a positive impetus to the development of China’s financial market as well.

“From the development trends in the global financial market, options have become more and more favored by large institutions in Europe and America,” said Jing Chuan.

According to information, the copper option trading is currently being conducted in the exchanges including LME, SHFE, COMEX from CME Group and MCX.

　　Table 1 Global Copper Option Trading

According to Jing Chuan, relevant copper investors have all the more been expecting the launch of the copper futures option, although OTC copper futures option is always there. As a matter of fact, option is an insurance-like risk management instrument requiring relatively simple operation since futures contracts are much stricter than those of options in terms of operation and requirements. Compared with traditional copper futures for hedging, the copper futures option is therefore an instrument with lower cost, simpler operation and controllable risk, which really fits the needs of continuously changing copper investors. SHFE launches the copper futures option to not only enhance the investment efficiency, but perfect the hedging system for the futures market as well.

Wu Chaoqing, a veteran futures expert, said that the approval of the copper futures option project marks the formal kick-off of the first important industrial product option in China, which indicates the coming of an era with futures, options and diversified derivatives in China’s industrial product floor market after the futures and options advance side by side to end the history merely with single futures instrument in the market.

According to Wu Chaoqing, regardless of hedgers, speculators or arbitrators, the approval of SHFE’s copper futures option project will all be a huge boost. This is because the copper futures option in the floor market has four aspects of advantages compared with OTC copper option, that is, lower option trading cost, higher trading efficiency, lower trading risk and promotion of industry upgrade.

Furthermore, the approval of the copper futures option will facilitate the extension and improvement of China’s industrial products futures market system, which means the relation chain of “Physicals – Futures -Options” will become more perfect.

Wu Chaoqing held that an effective options market may reduce the price fluctuations in the relevant markets, and also enhance the attractiveness of underlying assets. The launch of copper futures option follows the development trends of China’s financial market, boosting the great development of financial engineering and arbitrage markets, and truly put into effect the rapid development of financial innovation and derivatives. In short, the approval and earlier launch of the copper futures option not only satisfy the urgent demand of the market, but also make an important achievement in the financial innovation, undoubtfully becoming a huge boost to the futures market.

According to the experts, the launch of copper futures option will improve the flexibility of corporate risk management by offering a more elaborated risk management instrument to copper industrial chain-related enterprises, and at the same time facilitate China’s construction of international finance centers and enhance the voice in the global copper pricing by improving the investor structure of domestic copper futures market.

According to relevant responsible head from SHFE, with the copper futures option project got approved, the Exchange will abide by the regulations of CSRC, further make preparations for the listing and effectively enhance the market regulation and risk prevention systems to ensure the smooth launch and operation of the copper futures option.