In order to promote the smooth development of the work in options and foster the domestic group of market makers, from December 12 to 13, Dalian Commodity Exchange (DCE) organized the workshop on options market maker which was designed for futures company members, some securities firms and institutional investors. The workshop was attended by a total of more than 70 participants including those from the invited units such as the China Securities Regulatory Commission (CSRC), the exchanges and the margin monitoring center.
The training was aimed at the member representatives providing liquidity in DCE’s emulation trading of options, including two parts of the training on market-maker business and the discussion on the market-maker system. In the training on market-maker business, the three experts, Farid Moslehi, chief of KCG Asia Pacific, Lu Changkai, chairman of Taiwan Aodihua Futures Co., Ltd. and Huang Jinwen, CEO of China-data.com.cn, gave the training on the theory of market maker, pricing strategies, risk prevention and other aspects to the liquidity provider in the DCE emulation option trading. Experts believed that the market makers will take the responsibility of providing the market with bilateral continuous offers and (or) response to the inquiries. The offers of the market makers are the passive bilateral offers for the market-maker contracts according to the market conditions, which also enjoys concessions in trading fees and other aspects. The introduction of the market-maker system will provide liquidity for the options market and facilitate the discovery of fair prices. Of course, there are certain risks for the market making itself. We should control the relevant risks at different levels such as the single order, asset portfolio positions and different models, etc.; meanwhile, it is suggested that the exchanges should take some protective measures for the market makers in extreme cases. In other countries, a majority of market makers are the dealers trading with their own funds.
In the discussion on the market-maker system, some well prepared liquidity providers in the emulation options trading, experts and business personnel of the exchanges were invited to discuss and compare notes on the market-maker-related topics such as the preparations, regulatory systems and access standards.
When attending the training, Sun Na, Senior Institute Fellow of Xinhu Futures, said that as an important institutional arrangement of overseas exchanges addressing the problem of market liquidity, the market-maker system not only meets the investors’ demands for investment but also deepens and extends the market trading by providing the market with bilateral offers. It is the most in-depth training of all the training sessions on the market maker, which is very practical and clearly explains the two central businesses of market maker including the risk control and the inventory management of positions. She also said that the training had framed many problems that the futures companies had not expected in advancing the option businesses, and the strategies learned in the training could be effectively applied to the actual operations.
Su Yizheng with Business Innovation Division of Haitong Futures said that Haitong Futures has been actively involved in the emulation trading of market making and options, carried out the research in related strategies and set up the special strategy team of the option businesses. The training provided the tips on the key operational matters such as the quoting modes and the stock control, addressing the attendees’ puzzles.
Zuo Hongtao, a project manager of the Technical Support Department of Galaxy Futures, said that the training is particularly timely, as prior to the training, the lack of actual trading experience had led to the research and development as well as the technologies of many futures companies only in theory with a lot of previous operations taken for granted. The futures companies were greatly benefited by the international specialized market-maker institutions briefing the training on their own experience. It is hoped that DCE could hold more similar training sessions and exchanges in the future.
A DCE official said that it is one of the key tasks this year for DCE to make full preparations for the listing of the options. As an important part of option promotion, the market training has always been a focus in DCE’s preparations for the listing of the options, and since early this year, DCE has organized a series of training sessions on options at different levels. Although the market maker system is not a necessary condition for the listing of the options, according to the international experience, the introduction of the market-maker system is an effective guarantee for the market liquidity and the price stability. To make full preparations for the introduction of the market-maker system, DCE has made active efforts in this aspect by continuously promoting the improvement of the institutions and the development of the systems. Previously, DCE had selected 20 members and institutional clients to provide liquidity for the emulation trading, which played a positive role in narrowing bid-ask spreads, correcting the price deviations and increasing the trading volumes of inactive contracts.
Since launching the internal options emulation trading in May 2012, DCE has gradually expanded the range of participation to the entire market. Up to now, the number of participating members has reached 120, with the stable operation of the emulation trading, an average daily transaction of over 2 million contracts and an average daily number of over 2,000 brisk accounts. Currently, DCE has initially completed the preparations for the rules and the system of the option business, and actively promoted the development of the futures company member end system and the information provider system through the support in fees and other means. The members are expected to complete the preparations for the systems by the end of next February.