Economic Daily: SHFE Rebar and Hot Rolled Coil Transaction Activity Significantly Dropped

Updated on: May 3, 2016

Reported by He Chuan, Journalist from Economic Daily

According to the latest data released by the Shanghai Futures Exchange, on April 29, SHFE deformed bar, hot rolled coil and other varieties of dominant future positions were 3.6, 2.8, decreased by 50.9% and 53.1% compared with April 22; turnover of rebar and hot rolled coil were down nearly 51% and 50% compared with April 22. This shows that the rebar, hot rolled coil and other varieties of activity has dropped significantly, and the excessive short-term trading momentum has been initially curbed.

In fact, as for the overheated trade of some categories, SHFE has implemented a number of market risk control measures including an increase in transaction fees, adjustment of margin ratio, increasing efforts to investigate violations and reducing continuous trading hours, made strict control of excessive trading trend of some varieties. The objective is to compress the accrual space of too active short-term speculative trading, and reduce the excessive turnover positions of some varieties, so as to maintain the smooth operation of the market, and ensure the effective development of the economic function of the market.

Specifically, as of the liquidation settlement on March 15, the fuel oil and bitumen future contract 1606 trading margin standard had been adjusted to 10%, and the rolled bar daily liquidation transaction fees are resumed; after April 5, tin futures contract trading margin ratio is adjusted to 6%, and the price limit adjusted to 5%; rebar and hot rolled coil futures contracts trading margin ratio is adjusted to 7%, and the price limit adjusted to 6%.

On April 21, SHFE issued the Notice on Current Market Risk Control, and resumed hot rolled coil daily liquidation transaction fees. Meanwhile, hot rolled coil, rebar, fuel oil and bitumen transaction fees are adjusted from 0.4/10000, 0.6/10000 and 0.8/10000 to 1/10000 respectively. On April 26, SHFE issued the Notice on Market Risk Control Work in 2016 Labor Day, in order to control the risks in the holidays. As of May 3, the adjustment on the rebar, hot rolled coil and bitumen night trade time took effect.

Particularly, SHFE has also investigated recently 33 transactions causing abnormal price fluctuations, of which 5 cases are suspected of illegal trading, and the investigation and evidence collection work have been carried out in accordance with provisions of Shanghai Futures Exchange Illegal Case Investigation and Handling Procedures; and handled 715 "abnormal trading behaviors", including 171 cases of exceeding the transaction limit, 465 cases of exceeding frequent declaration and withdrawal, 72 cases of large declaration and withdraw, and 7 cases of actual control of related account combination and exceeding positions.

"Ample liquidity is the basis of futures market to achieve the basic functions of the economy, but excessive volume and speculation may make the futures price unable to reflect the relationship between supply and demand and the development trend of the market, and unable to really play the role of price discovery." Cai Luoyi, Deputy General Manager of Shanghai Futures Company says. Currently, SHFE has taken some cooling measures for some varieties by adjusting the deposit, fees and reducing the night trading hours, which have taken obvious cooling effect on the speculation, and been understood by the majority of futures investors.