The ushering-in of overseas traders for iron ore futures has entered into the home stretch along with the releasing of relevant rules on the special products of iron ore by Dalian Commodity Exchange (DCE). How to strengthen the market’s regulation and prevent trading risks so as to protect industry clients in the world has been the focus of all market participants.
Currently, DCE has adopted the risk management systems, such as the trading margin system, the price limit system, the position limit system, the trading limit system and the large position reporting system, and the market supervision systems like the system of abnormal transaction management and the system of violation management. The above risk control and supervision systems have covered the whole process of futures trading. After the ushering-in of overseas traders for iron ore futures, DCE will remain its previous risk control framework and overall market regulation rules, and the domestic and overseas traders should observe the same risk management and market supervision systems.
Given the differences in regions, time zones and trading routes between overseas and domestic traders, DCE has made targeted adjustments and arrangements in the systems while maintaining the existing risk control and regulation rules.
First, DCE has made clear relevant issues in the risk control and regulating systems on the mode that an overseas client entrusts an overseas broker which entrusts a futures company member for trading. For example, in the businesses related to large position reporting, hedging and arbitrage application, filing of related accounts under common control and filing of program trading, it has made clear that an overseas trader should entrust an overseas broker that entrusts a futures company member with handling relevant issues. Meanwhile, the overseas broker should, according to its responsibilities in handling relevant business, assist the futures company member in noticing the exchange’s requirements on risk control and regulation, including forced liquidation, large position reporting, risk alert and abnormal trading regulation.
Second, DCE has adjusted the forced liquidation time. To be well prepared for the ushering-in of overseas traders for iron ore futures, DCE has adjusted the forced liquidation time from 10:30 to 13:30 and the judging time for forced liquidation due to a member’s fund shortage and a client’s forced liquidation for violating position limit from 10:15 to 13:00, thus solving the long remittance and transfer time of cross-border funds and the working time difference between domestic and overseas banks and leaving sufficient time for overseas clients to prepare funds and handle positions.
Third, DCE has made clear the measures against unusual situations. As the domestic iron ore trading is highly dependent on import, DCE has made the supplemental provision that DCE can announce an unusual situation when wars, social instability, natural disasters and other domestic and foreign factors are exerting or to exert great impact on iron ore import, which will help to better manage the risks.
In general, DCE’s risk management and market supervision systems of iron ore futures are similar to those of crude oil futures, but there are some differences in some details.
In terms of position limit, position limit is only set up for non-futures company members and clients of iron ore futures and not for futures company members and overseas brokers. However, for crude oil futures, position limit is set up for all non-futures company members, overseas special non-broker participants, clients, as well as futures company members, overseas special broker participants and overseas intermediaries. Besides, there are some differences in the time nodes of gradient position limit between iron ore futures and crude oil futures.
For both iron ore futures and crude oil futures, forced position reduction is one of the alternative measures for three consecutive trading limits in the same direction. For iron ore futures, DCE will decide whether to take the measure of forced position reduction after the market closing of the very day when three consecutive trading limits in the same direction occur; for crude oil futures, the market will be closed on the 4th trading day after the occurrence of three consecutive trading limits in the same direction, and DCE will decide whether to take the measure of forced position reduction on the 4th trading day.
And the forced liquidation time also differs. The forced liquidation time of iron ore futures starts from the 3rd session at 13:30, while that of crude oil futures starts from the 2nd session at 10:30.
The DCE official said that earnestly implementing the risk prevention and supervision rules is a key regulatory guarantee for the stable operation of the internationalization of iron ore futures. DCE has set up optimized risk control systems and conducted strict market regulation through the price limit system, the trading margin system, the price limit system, the forced position reduction system, the forced liquidation system and the system of abnormal transaction management. And it has made some adjustments according to overseas clients’ needs, and it is able to correspond to and effectively prevent trading risks, thus ensuring the successful implementation and stable operation of the internationalization of iron ore futures.
