Economic Daily: Gold, Silver Futures Products Grow up “Overnight”

Updated on Jul 15,2014

July 15, 2014

By Liu Ming

According to the latest statistics released by the Shanghai Futures Exchange (SHFE), since the launching of the Continuous Trading Program, or the Night Trading Session, its silver futures’ trading volume has leapt to the first in the world and its gold futures’ trading volume has maintained the second in the world and the first in Asian-Pacific region. As a result, the “China Price” has gradually formed in the precious metals futures market.

Statistics show that the ratio of trading volume of the SHFE’s gold against that of the standard gold contracts of COMEX (New York Mercantile Exchange) has increased to 0.23 from the average 0.08 before the listing of the Continuous Trading Program, up by about 2.9 times; and the ratio of trading volume of its silver against that of COMEX’s standard silver contracts has increased to 2.30 from the previous 0.28, up by about 8.2 times.

Hu Yuyue, President of the Securities and Futures Institute of Beijing Technology and Business University, believed that judging from the practice results, the Continuous Trading Program, as an institutional innovation in the futures market, has effectively connected the Chinese and foreign futures markets. Under the circumstance of the incomplete opening-up of China’s futures market, gearing to the trading time of international market can make the prices in domestic market fully reflect the international factors, thus enhancing the influence of our own prices. Meanwhile, the Continuous Trading Program has effective vitalized the stock fund in the market. Since last year, there have been 10 newly-listed products in domestic futures market, but the trading margin’s scale has not increased simultaneously. And the Continuous Trading Program has become an effective way of vitalizing the stock fund in the night trading session, thus enhancing the use efficiency of trading margin.

Xu Ling, General Manager of Haitong Futures, also believed that the Continuous Trading Program has brought about positive changes. As domestic futures market has acted on the international conventions in terms of trading time, risk control mechanism, and pricing mechanism, its product pricing power has been effectively enhanced, thus accumulating experience and laying foundation for the 7*24 hours trading and the futures market’s internationalization.

The price downside gap at the after-hours trading has always been an important factor influencing the price continuity of domestic futures products. According to the statistics of Haitong Futures, the price downside gap of relevant products has obviously narrowed since the launching of the Continuous Trading Program, with that of gold, silver, copper, aluminum, zinc, and lead down by 50%, 60.75%, 53.42%, 21.65%, 56.85%, and 52.31% respectively on daily average. The decrease of price downside gap has also greatly enhanced the price continuity of domestic futures products and strengthened the products’ price finding function.

Judging from the market situation, since the launching of the Continuous Trading Program, gold, silver, and other precious metals products have presented brisk trading in recent-month contracts and more obvious connection with the recent contracts of COMEX’s relevant products. And the connection between the futures and spot goods has been strengthened and the month-by-month trend has appeared in the dominant silver contracts. “All these changes are good for improving the price continuity and enhancing the products’ price-finding function.” Xu Ling said that from July 2013 to the end of June 2014, the average daily trading volume of gold and silver futures has increased by 3.32 times and 6.99 times respectively compared with that before the launching of the Continuous Trading Program and their position-holding amount has gone up by 67.35% and 84.68% respectively compared with the same period of last year. And the brisk trading has brought convenience for enterprises to participate in hedging and also enabled them to formulate trading policies more flexibly.

For investors, the Continuous Trading Program has led to the closer connection between the selling and buying of futures products and reduced the price downside gap caused by time difference. In face of the sudden great fluctuation in the fringe market, investors can manage immediately, thus reducing the risk of overnight position-holding and the systematic risk, and enterprises can better control emergencies and policy risks and enhanced the arbitrage enthusiasm of both the sell and buy. Hu Yuyue said that under the current situation of no convenient channel to participate in overseas trading, the Continuous Trading Program has broken through the limitation of time and space and become an effective method for investors to avoid price fluctuation risks during overseas trading time.

According to the introduction of relevant person in charge of the SHFE, the launching of the Continuous Trading Program is an important step taken by the domestic futures market toward the international development. Since the launching of the Continuous Trading Program of the SHFE, the market has maintained steady operation on the whole, with the market scale of the products engaging in the Continuous Trading Program remarkably expanded, the investor structure continuously optimized, the market functions being more fully displayed, and the international influence greatly improved. All these show that the operation and maintenance capacity of domestic futures market has kept enhancing, its risk management capacity has been further strengthened, and its market service level has been fully increased, thus laying a more solid foundation for the innovative development of domestic futures market.