Shanghai Securities News: The SHFE Amends Standard Gold Futures Contract

Updated on Apr 04,2015

By Ruan Xiaoqin

The “Announcement on Distribution of the Amendments to the Gold Contract Specifications of the Shanghai Futures Exchange and Risk Management Rules of the Shanghai Futures Exchange (SHFE)” was issued on April 2, according to which the SHFE will amend regulations about “contract series” in the gold contract specification and gradient deposit for open interest in a bid to meet changed market demands and improve market risk management.

Sources say, the amendment changed the item of “contract series” in the gold contract specification from the current “monthly contract of the recent 3 consecutive months and consecutive even months contracts within the recent 11 months” into “monthly contract of the recent 3 consecutive months and consecutive even months contracts within the recent 13 months”. After adjustment, the gold futures contracts simultaneously in trading will rise from 7 to 8. Moderate extension of contract series has reflected the need of the market as it can not only guarantee the simultaneous trading of June contracts and December contracts and facilitate the transfer and arbitrage between June and December, but correspond to the contract trading months of gold futures at COMEX so that enterprises and institutions would find it easier to launch strategies across domestic and overseas markets. After amendment, the standard gold futures contract shall take effect on the listing day of AU1604.

In addition, due to the development of continuous trading, or the night trading session, and the participation of more institutional investors like banks and funds, the scale of open interest of gold futures has been largely increased, and so far the average daily open interest of dominant contracts of gold futures has outnumbered 200,000 contracts. Therefore, to raise the benchmark value of start-up open interest for the gradient deposit of gold futures in the “Risk Management Rules of the Shanghai Futures Exchange” from 160,000 contracts to 360,000 contracts is not only to reflect market changes in time but spare space for the involvement of more financial institutions in the future. The amended risk management rules shall be effective from the closing of trading on April 7, 2015.

The SHFE used to upgrade the gradient deposit for the open interest of silver futures to Grade 3 based on the actual operational state, in a bid to facilitate market risk management and investor’s trading, resulting in stable market operation and ideal feedbacks. In view of this successful case, the gradient for the open interest of gold futures was also changed to Grade 3, with the proportion of intermediate gradient deposit fixed at 7%.

Relevant SHFE personnel claimed that the amended gold futures contract will better meet market demands, conducive to maintaining sound operation of the gold futures market and promoting the gearing of China’s gold futures market to its global counterpart.