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The 2019 Industry Service Innovation Pilot Program Illustration Meeting of Dalian Commodity Exchange (DCE) is held in Shenzhen yesterday. DCE Vice President Wang Yufei says at the meeting that DCE will continue to pilot the “Peasants’ Income Guarantee Plan” in 2019 to further encourage the futures market’s in-depth service for “agriculture, rural areas and peasants”.
Wang says that DCE has rolled out the integral “Corporate Risk Management Plan” which involves the OTC (over-the-counter) options, the exchange-traded options and the basis trading and allows the participation of financial institutions like futures companies, insurance companies, securities companies and commercial banks.
Continue to Pilot the “Peasants’ Income Guarantee Plan”
“Specifically, it will be mainly piloted in counties, as well as in some other areas. With regard to the pilot in counties, DCE will first implement the guidance of the China Securities Regulatory Commission (CSRC) and then pilot in some counties with limited capital input, thus providing central authorities with typical samples for analysis.” says Wang.
Wang says that DCE will explore to pilot the “insurance + futures” mode in counties supplemented with the “Corn Income Insurance” pilot program carried out by the Ministry of Finance and other two ministries (commissions) in Liaoning and Inner Mongolia. Besides, DCE will launch the innovation modes like the breeding cost and profits “insurance + futures” for hog and egg and continue to explore the integral “Peasants’ Income Guarantee Plan” which involves various forms like “insurance + futures”, the OTC options and the basis purchase and allows the participation of various financial institutions such as futures companies, insurance companies and banks.
“Hope that this plan will give full play to the futures market’s core advantages in price finding and risk management and make use of the exchange to combine the advantages of various financial institutions to achieve crossover cooperation, thus providing peasants with efficient, easily-involved, comprehensive and sustainable risk management instruments.”
Wang says that the pilot in counties will adopt the income insurance for corn, soybean and other plants and meanwhile encourage the supplemented basis purchase mode. The corn pilot will be carried out in four provinces -- Heilongjiang, Jilin, Liaoning and Inner Mongolia, and the soybean pilot will be carried out in five provinces: Heilongjiang, Jilin, Liaoning, Inner Mongolia and Shandong. Shandong is included for soybean pilot as the Soybean Revitalization Program covers three provinces in northeast China (Jilin, Liaoning and Heilongjiang) and one area (Inner Mongolia), as well as the Huang-Huai-Hai area, in which Shandong is the major focus.
Rolling out Corporate Risk Management Plan
DCE has carried out the OTC options pilot and the basis trading pilot successively since 2013.
Wang says that after years of pilot, the OTC options has been familiar to and used by more and more industry enterprises and Yihai Kerry, Jiusan Grain & Oil and many other enterprises have involved in it. Besides, numerous production, processing, consumption and trading enterprises have started to make use of the OTC options to conduct risk management and promote their sound and stable production and operation. In addition, commercial banks, securities companies and other financial institutions have actively taken part, thus offering more abundant and more comprehensive services for the whole industry.
Basis trading is the most important carrier for the functioning of the futures market, and it can facilitate the price finding and risk management functions of the futures market.
“Basis trading can help enterprises to make clear the supply and demand and reduce cost earlier, and its trading price is open and transparent. Cargill, Mingri and many other enterprises have taken part in the pilot programs. As the key point of futures-spot combination, basis trading has played an increasingly important role in displaying the futures market’s comprehensive leverage function”, says Wang.
