China Securities Journal: The SHFE Differentiates Night Trading Hours

Updated on Dec 24,2014

By Guan Ping

Since the evening of December 26 (Friday), the four products newly added by the Shanghai Futures Exchange (SHFE) have ushered in the continuous trading era. Specifically, the continuous trading or night trading session for rebar, hot rolled coils and bitumen is from 21:00 to 01:00 on the next day from Monday to Friday, and that for the natural rubber is from 21:00 to 23:00 from Monday to Friday, with the continuous trading not conducted on the first working day prior to the statutory holidays (excluding weekends).

With regard to the different continuous trading hours set for different products, the relevant officials of a number of futures companies said that previously the SHFE had extensively solicited opinions and suggestions from market participants in various ways such as questionnaire survey and forums for members and clients, and after fully considering the actual demands of industry clients as well as the conditions of and correlation with the international markets for the related products, the SHFE has set the trading hours to fully reflect the market features and demands of specific products while basically keeping them in line with the continuous trading hours of the products of non-ferrous metals.

Only 2 Hours for Night Trading of Rubber

The continuous trading program of the SHFE for the products of the energy and chemical industry and ferrous metals will be officially launched on Friday, marking the introduction of the night trading for the third batch of products on the SHFE. Among the products, the natural rubber is especially eye-catching as the product has always been the focus of game playing for the speculative funds as well as an important benchmark for the trends of the commodity market.

The continuous trading session for the natural rubber is set from 21:00 to 23:00, with the period between 18:00 on the same day when the Japanese rubber market closes and 07:55 on the next day when the Singaporean market opens, providing the participants with a new market platform for risk management and investment and trading and adapting to the trading habits of major participants.

Yan Xinbing with Orient Futures said that according to the trading habits on the spot market of rubber, the offering of prices is usually active from 15:00 to 18:00 when the domestic markets close with most spot transactions completed in the period. From that time until 08:00 the next day when the Japanese and Singaporean markets open, the commodity prices will experience fluctuations overnight, bringing significant impacts on the prices of natural rubber which are highly financial, and the introduction of the night trading session will help smooth the risky volatility.

In this regard, Yuan Shangkuan, a futures business manager of Hainan Rubber Group, said that the setting of the closing time at 23:00 has not only reflected the consideration of the characteristics of the futures product but also mitigated the impact of the extended trading hours on the industry clients having to change their trading habits.

Facilitating Arbitrage of Ferrous Metal Products in Domestic and Foreign Markets

As for the three futures products of bitumen, rebar and hot rolled coils, what is the necessity for the introduction of the continuous trading?

An insider said that as the trade of rebar and hot rolled coils and the import of relevant raw materials are closely related to the global markets, the listing of the rebar and hot rolled coils on the night trading will help the investors timely hedge against the risks of severe price fluctuations on the international markets and increase the smoothness of the prices of steel futures products.

Weng Mingxiao with the research center of Xinhu Futures said that the existing futures products on the international markets such as billet, rebar and iron ore have little impact on the domestic steel futures market as a result of the small trading volumes. Among other related products, the iron ore options on Singapore Exchange, for example, have significant impact on the market, and some market investors have conducted the arbitrage operation on the Singaporean iron ore options and the domestic rebar futures. As the Singaporean iron ore options close at 08:00, the continuous trading of the domestic rebar futures is conducive to the investors’ operations on the domestic and overseas markets. Meanwhile, with the collective listing of the products of the ferrous metals sector on the night trading, the introduction of the night trading to the rebar and hot rolled coils futures will facilitate the investors’ arbitrage trading among the sectors.

Regarding the bitumen futures, Quan Feng with Yong’an Futures said that the introduction of the night trading will enhance the real-time interaction with the futures of upstream raw materials especially the crude oil. As a result of the correlation between the raw materials of bitumen and the crude oil, the price fluctuations of the crude oil will indirectly affect the bitumen market. Without the night trading session in the past, the plunge of the crude oil prices tended to cause gaps the next day with the bitumen futures prices opening much lower. The real-time interaction of the bitumen and crude oil prices after the introduction of the night trading session will increase the continuity of the futures prices while making the bitumen futures market brisker.