China Securities Journal: Shanghai International Energy Exchange Approved 4 Banks as the Designated Depository Banks for Margin Depository Business of Its Overseas Clients

Updated on: July 5, 2017

Reported by Zhang Lijing, Journalist from China Securities Journal

On July 4, Shanghai International Energy Exchange (INE), a subsidiary of Shanghai Futures Exchange, issued a notice, approving the Bank of China, Bank of Communications, China Merchants Bank and Development Bank of Singapore (DBS) China as the designated depository banks for margin depository business of its overseas clients.

According to the Designated Depository Banks Management Rules of the Shanghai International Energy Exchange, INE’s margin depository business is classified into margin depository businesses for its domestic clients and that for its overseas clients. Margin depository business for overseas clients refers to the margin depository business related to overseas special participants, overseas intermediaries and overseas clients.

According to the relevant person in charge of INE, crude oil futures trading is based on the fundamental framework described as "international platform, net price trading, bonded delivery and RMB denomination". International platform means the internationalization of trading, delivery and clearing to facilitate the free, efficient and convenient participation of domestic and overseas trading participants. RMB denomination means RMB shall be used in trading and delivery, while USD and other foreign exchanges can be used as trading margin. Therefore, the differences in bank management of margin depository business of overseas clients and current domestic clients have been considered since the initial design of crude oil futures. Shanghai Futures Exchange (SHFE) discussed with the then depository banks on the requirements of depository business of overseas clients as early as in 2013, and the banks were also active in system development and institutional design. The banks that apply for margin depository business of overseas clients have conducted a number of system tests in the test environment of INE since 2014, and passed the preliminary review of INE in this April. On July 3, 2017, after passing the data reporting test of the monitoring center, the abovementioned four banks received the approval letter from the monitoring center, basically meeting INE's requirements of final approval.

Market participants believe that the appearance of designated depository banks of depository business of overseas clients not only has guaranteed the foreign exchange business settlement of crude oil futures, but also has reflected the gradual opening of the domestic futures market to the overseas market with crude oil futures as the beginning. It is one of the important practices of China's futures market in opening to the outside world and internationalization.

It is learned that INE will strive to launch crude oil futures in the year after actively and steadily completing the preparations for the listing.