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Lately, relevant rules on the bonded delivery of iron ore futures, as an important part of ushering in overseas traders of iron ore futures, have been released to the public. An official of Dalian Commodity Exchange (DCE) said that the iron ore futures contract will remain the same as before and the pricing currency will still be RMB after the ushering-in of overseas traders, and overseas traders can take part in iron ore futures delivery through the bonded delivery system. Compared with the bonded delivery system released in February 2016, the current one has made some adjustments and supplements in invoicing, goods payment settlement of bonded delivery, rules of transferring bonded warehouse receipts and matching logic of bonded delivery.
For the convenience of overseas traders to take part in bonded delivery, DCE has given consideration to three major aspects while designing the bonded delivery system of iron ore. The first is the uniformity of delivery methods for the opening-up of special products. The revised bonded delivery system of iron ore futures is similar with the crude oil futures delivery process in terms of the premiums and discounts settlement, invoicing method and goods payment process, thus bringing convenience for overseas traders to understand relevant rules and grasp relevant business while being involved in the delivery of special products in China. The second is the business innovation. Innovative design has been made on the common features of spot trading, bonded delivery and duty-paid delivery of iron ore futures, and the replacement of warehouse receipts is offered to dispel overseas traders’ doubt of possibly receiving duty-paid warehouse receipts in delivery as a buyer. The third is the clarification of tax affairs and cross-border goods payment management. The actual bonded delivery volume has been low since the launching of the bonded delivery business of iron ore futures in 2016. Apart from the reason that domestic clients have less needs on bonded delivery, another important reason is that there is no clear operation standard for domestic enterprises in terms of issuing tax receipt and declaring funds in bonded delivery. By taking the opportunity of the internationalization of iron ore futures, DCE has coordinated with relevant ministries and commissions including the finance and taxation departments and the foreign exchange administration to issue relevant rules and specify relevant operations.
As a result, DCE has initiated a series of innovative institutional measures in the bonded delivery business. In the new system, overseas traders and brokers can use receipt voucher as the note issued to the seller member, thus increasing the convenience of note handling, and the requirement that all domestic participants adopt value added tax invoice will bring convenience for the unified management of the tax department. Meanwhile, the business of the replacement of warehouse receipt will guarantee that an overseas buyer will receive relevant bonded warehouse receipt. And the process for a domestic client to take part in duty-paid delivery business remains the same as before on the whole. In addition, the new system has raised further requirements on the monitoring and information collection of iron ore futures’ bonded warehouse receipts. The nationality of the goods owner, delivery price, delivery way, printing of bonded delivery settlement statement and relevant information should be checked in time to meet the market regulation rules.
To adapt to the new changes resulted from overseas traders taking part in iron ore futures bonded delivery, DCE has revised relevant rules on invoicing and goods payment. With regard to invoicing, the bonded delivery of iron ore futures adopts the mode of 5 parties issuing invoices. Namely, the exchange issues an invoice to the buyer member and takes an invoice from the seller member; the buyer member issues to the buyer client, and the seller client issues invoice to the seller member. Such a method will avoid the exposure of clients’ information of the buying and selling parties and dispel overseas traders’ worry. Value-added tax invoice will be used in all procedures, except that an overseas trader or broker, as a seller, can use a receipt voucher as the invoice issued to the member.
In terms of goods payment, the goods payment of bonded delivery (including premium and discount) will be settled by DCE. When an overseas trader or a domestic client registers a bonded warehouse receipt, the bonded delivery warehouse needs to fill in premium and discount of iron ore’s quality according to the test report. And the goods payment settlement for the transfer of the warehouse receipt’s ownership also involves premium and discount. When DCE settles the goods payment, the seller member should submit the invoice in time. The date of submitting the invoice for the one-off delivery of bonded warehouse receipts should be prior to the market closing of the last delivery day, and the date of submitting the invoice for the exchange for physicals should be before the market closing of the approved day for the exchange for physicals. If the seller member does not submit value-added tax invoice on the 7th trading day after the day when it should have submitted but failed to do so, DCE will withhold a fee, i.e., 5% of the goods payment.
The official said that bonded delivery is a key institutional arrangement of getting through the physical channel of domestic and foreign markets. Conducting the bonded delivery of iron ore futures and regarding the settlement price of bonded delivery (iron ore futures delivery settlement price deducting tax) as the basis for the Customs to appraise the price will help the futures market to establish a connection between domestic prices and overseas prices, thus furthering increasing the connectivity of prices at home and abroad. Currently, the bonded delivery business is only carried out in Dalian Port, and it will be applied in other ports gradually for the convenience of all clients. What’s more, Dalian Port has become an important bonded mixed ores center of Vale of Brazil in China, and its mixed ores scale has kept increasing. This part of goods has also included in the bonded delivery, thus ensuring the spot goods quantity of bonded warehouse receipts available for registration and satisfying the client’s bonded delivery need.
