China Securities Journal: Adjustment and Optimization of Non-ferrous Metal Index Completed Successfully in SHFE

Updated on: Aug 14, 2015

Reported by Guan Ping, Journalist from China Securities Journal

After closing on August 12, the non-ferrous metal futures price index adjustment and optimization of SHFE worked smoothly and formally took effect. New scheme includes two new varieties, nickel, tin, adjusted and optimized index weight calculation formula, upper and lower limits of varieties weight, weight adjustment window, weight redistribution mode, daily rise and fall calculation, new varieties including time, and other aspects.

It is learned that the new scheme decreases the upper limit of the weight of each component commodity from 80% to 60%, the low limit of weight is raised from 5% to 8%, each component commodity get more reasonable and balanced allocation of weight, and diversification effect is enhanced. This not only reduced the fluctuation of a single species that would bring too much influence on the index, but also helped to improve liquidity of futures market which was not active previously, thus helping entity enterprises meet the requirements of hedging.

In addition, from the perspective of prudent risk management, SHFE combed and optimized compilation details of the index to better control the potential risks. In the process of detail optimization, SHFE earnestly listened to the feedback from the domestic market, drew on the internationally mature practice, making the relevant details of the index weight adjustment more reasonable. Through the optimization of various details, it not only made the market risk and operational risk more controllable, but also made the index and real investment more close to the yield curve, thus attract the institutional investors to participate. The revised scheme is closer to the internationally mature commodity index scheme and included two new-listed varieties of nickel and tin. Index historical data remains unchanged.

The non-ferrous metal index in SHFE was officially released on December 26, 2012. The principal of related department in SHFE said that, the scheme adjustment of non-ferrous metals index is in line with the "New Nine Regulations" on developing the trading tools such as commodity index, enhancing the futures market to serve entity economy, improving non-ferrous metals index trading and risk management functions, laying solid foundation for non-ferrous index futures to be listed in SHFE.