China Securities Journal: The Risk Management Measures of Shanghai Futures Exchange Become Effective, Overheating Has Been Mitigated

Updated on: May 3, 2016

Reported by Guan Ping, Journalist from China Securities Journal

In view of the recent overheating of some varieties, Shanghai Futures Exchange (SHFE) implemented several market-oriented risk management measures, including raising transaction fees, adjusting the margin ratio, increasing the intensity of investigating and punishing rule violations, reducing continuous trading hours, etc., to strictly control the trend of overheating of some varieties, reduce the profit margins of overactive short-term speculative trading, reduce the exorbitant trading volume-position ratio of relevant varieties, maintain the smooth operation of the market and improve the performance of the market in serving real economy.

First, the SHFE raised the ratio of margin and transaction fees of some varieties. Since the close of March 15, the margin of 1606 contract of fuel oil and bitumen futures was adjusted to 10%, and transactions fees on liquidation of daily positions of rebar varieties were collected again; after April 5, the trading margin ratio of tin futures contracts was adjusted to 6%, and price limit was adjusted to 5%; the trading margin ratio of rebar and hot-rolled coil futures contracts was adjusted to 7%, and price limit was adjusted to 6%; the Notice on the Current Market Risk Management Work was issued on April 21, transactions fees on liquidation of daily positions of hot-rolled coil varieties were collected, and transactions fees on hot-rolled coil, rebar and fuel oil and bitumen varieties were adjusted to 1? from 0.4?, 0.6? and 0.8? respectively; the Notice on Market Risk Management Work During the International Labor Day in 2016 was issued on April 26, which made arrangements for risk management during the holiday; the adjustment of night trading hours of rebar, hot-rolled coil and pitch became effective since May 3.

Second, the SHFE increased delivery capacity and delivery brand. Since the beginning of this year, the SHFE has increased the storage capacity and delivery brand of varieties with fast-growing stock. It will also increase the delivery capacity and brand of nickel, natural rubber, pitch and other varieties with fast-growing stock at proper time based on market conditions to meet the market demand for delivery.

Third, SHFE effectively strengthened the front-line supervision. It investigated 33 transactions that caused abnormal price fluctuations, including 5 transactions suspected of rule violation, which have been subject to investigation and evidence collection in accordance with the provisions of the Measures on the Investigation and Handling of Cases against Regulations of SHFE; it dealt with 715 "abnormal transactions", including 171 transactions that violated the limit on self-trading, 465 transactions that violated the limit on frequent declaration of withdrawal, 72 transactions that violated the limit on declaration of large-amount withdrawal and 7 transactions that violated the limit on the consolidated positions of the portfolio of accounts with actual control; it was careful in the inspection of accounts with actual control, and conducted relationship identification, investigation and report for 105 new portfolios of accounts with actual control; it paid close attention to the operation of key contracts, grasped spot fundamental, hedging approval, warrant holding, position increase and reduction and doubts, and strengthened the investigation of the relevance between position increase and reduction and positions to ensure smooth delivery; it increased member inspection efforts, urged futures companies with membership to further strengthen their compliance management of clients, and focused on checking the following work of futures companies with membership: the management of frequent declaration of withdrawal and other abnormal transactions, whether they take the initiative to urge clients to report accounts with actual control and report on large accounts, etc.; for members and investors, it further strengthened the spreading of regulatory measures, and it organized risk management-themed training in Shanghai, Chengdu, Nanjing and Shenzhen recently.

Based on the recent operation, overall, the SHFE market was under stable operation, risks were basically controllable, and relevant varieties were less active in transactions compared with the previous period. Risk management measures have achieved initial results. The trading volume-position ratio declined day by day. On April 29, the trading volume-position ratio of rebar and hot-rolled coil was 3.6 and 2.8 respectively, decreasing by 50.9% and 53.1% respectively compared with April 22. The trading volume of rebar and hot-rolled coil on April 29 fell by nearly 51% and 50% respectively compared with April 22. The trading volume of these varieties was significantly lower than the previous period, and the overactive short-term trading momentum was initially curbed.

The SHFE said that, it would maintain strict and standardized management of the market, further strengthen real-time monitoring, market operation analysis and inspection of major violation of laws and regulations to strictly prevent illegal funds from flowing into the futures market, actively prevent and control market risks, and effectively safeguard the fairness and equity of the market.