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The “2018 DCE Iron Ore Overseas Business Training” was held in Shenzhen, the forefront of the reform and opening-up in China, on October 25. The international business of iron ore futures has been launched for half a year, and this training aims to strengthen the understanding of overseas brokers and members on the international business of iron ore futures, share the experience of expanding business abroad and solicit opinions to further improve the internationalization business. Wang Weijun, Vice President of Dalian Commodity Exchange (DCE), delivered a speech and nearly 200 representatives and clients from 101 domestic and overseas brokers took part in the training and shared their experience.
Building an open and diversified first-class derivatives exchange in the world is the vision of DCE. It has taken the opportunity of iron ore internationalization to promote the opening-up of the market and further build itself into a commodity pricing center and risk management center in the world. DCE’s iron ore futures officially ushered in overseas traders on May 4, 2018, realizing the internationalization of a listed product for the first time. Up till now, the internationalization business has presented a stable start and development, continuous growth of overseas traders’ participation, increasingly expanded international influence and constantly cemented application of iron ore prices.
In terms of the market operation, the market has maintained sufficient liquidity since the iron ore internationalization, with all businesses and technical systems going through steady transition and operation. In the first 9 months of 2018, the average daily trading volume and open interests of iron ore were 1,077,300 contracts and 904,400 contracts respectively; the average daily trading volume and open interests of corporate clients involving in the trading of iron ore accounted for 23.43% and 40.02%, respectively. The market prices have been stable, and the correlation of the futures and spot prices has maintained at 0.98. The basis has been stable, and the futures settled prices have been effectively restrained before the expiration of contracts. In September, bonded delivery of 100 contracts (a total of 10,000 tonne) of iron ore was completed for the Iron Ore 1809 Contract; the bonded delivery system which is convenient for overseas investors has gone through the market test; and the domestic and foreign relation has been cut through in physical delivery.
The number of overseas brokers and traders has kept increasing, showing the international attractiveness of iron ore futures. By the end of September, the iron ore futures market has attracted 38 overseas brokers from 5 countries and regions including Britain, Singapore, Hong Kong and Korea, which carried out 53 groups of commission business through 29 domestic futures companies; 86 overseas clients from 7 countries and regions including Singapore and Hong Kong have registered and opened accounts, and 57 have involved in trading. Till the end of September, the average daily trading volume, trading turnover and open interests of overseas traders were 7,331 contracts, RMB 358 million and 3,286 contracts, respectively.
In expanding international market, DCE has joined hands with members to work towards it, enterprises’ participation degree has been deepened; and the “dual price rings” pattern of the vehicle-board price at domestic ports and the seaborn price with futures prices as the key benchmark has been formed in the domestic iron ore market. At present, DCE has obtained the Hong Kong ATS license (becoming an automated service provider), registered a global Legal Entity Identifier, and set up an office in Singapore, thus opening up a convenient way for overseas traders to get access to the Chinese market. Besides, DCE has intensified publicity in the international market and supported member units and banks to promote their business abroad by law. Since the beginning of this year, it has supported members and banks to organize 37 sessions of trainings for nearly 1,000 persons in Singapore, Hong Kong, Korea, Japan, Australia and other countries and regions, keeping enhancing overseas clients’ understanding on the Chinese market. In this process, we’ve noted that industry enterprises have had deeper participation in the market. In August, Cargill and HBIS Group signed a long-term basis trading supply agreement of 2 million tonne; through the spot pricing of I1809 Contract and I1901 Contract, 6 iron and steel companies have started to negotiate and cooperate with Cargill. And the “dual price rings” pattern of the vehicle-board price at domestic ports and the sea drift price with futures prices as the key benchmark has been formed in the domestic iron ore market. Next, DCE will continue to improve market mechanisms and fuel the market construction, and further boost the transformation and development of the market in accordance with the guideline of “consolidating, enriching and improving”.
The first is to further optimize relevant rules and business. In opening an account, DCE will optimize the mutual recognition and examination of the investor suitability system and further simplify procedures for the convenience of overseas participants; in clearing, it will further improve the swap system, facilitating the transformation from the previous daily swap into the free swap within specified amount. It will research to add collaterals that can be adopted as margins, increase the use efficiency of foreign currency on the whole to solve the bad validity of adding margins, expand the participating ways of overseas traders, and facilitate the technical system upgrading and the classified settlement. With regard to futures delivery, it will further expand domestic bonded areas, study the feasibility of setting up warehouses abroad and the iron ore brand delivery system, and strengthen the representative and stability of futures prices. Besides, it will continue to enhance the activity of near-month contracts and the continuity of contract prices and improve the futures’ hedging efficiency.
The second is to further improve and intensify regulation, keep a close eye on market operation, strengthen real-time monitoring, handle unusual transactions in time, punish illegal behaviors severely, and uphold the “fair, open and justice” principal of the market, thus guaranteeing the stable operation and sustainable development of the iron ore futures market and facilitating the improvement of market efficiency and the functioning of the market while effectively preventing and controlling risks.
The third is to keep strengthening market expansion and cultivation service, support member units, banks and other institutions to expand business overseas and apply for the RMO license of Singapore, thus offering convenience for the business expansion of the institutions.
The fourth is to keep promoting market construction and early realize the vision of becoming a world’s first-class derivatives exchange. Actively studying to boost the floor options of iron ore, DCE hopes to build the world’s first-class derivatives market with iron ore futures as its core, which boasts of complete instruments and products including options, swaps, forwards, and indexes, abundant contract types, good domestic and overseas interaction and functional complementation of the floor and over-the-counter markets, so as to better serve the real economy, the market participants and the global market.
As for the opening-up of the market, DCE is now researching to formulate the internationalization schemes for RBD palm olein, No. 1 soybean and No. 2 soybean, with a view to further expand the opening-up of the market, enhance its international level and enrich the investment instruments of overseas participants.
At the training class, main staffs of the overseas business from the China Futures Market Monitoring Center, clearing banks, overseas brokers and relevant departments of DCE have engaged in the specific training on account-opening, the suitability system, the overseas broker’s registration, clearing, delivery, supervision, banks’ supporting service scheme and the experience of expanding business abroad. After the training, the participating overseas brokers and members have exchanged experience on expanding business abroad and gave their suggestions on the internationalization business of the exchange.
