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At 21:00 on July 4, Dalian Commodity exchange (DCE) will officially launch the night trading, bringing the number of the domestic products with night trading to eight and thus forming the more comprehensive and diversified “Chinese commodities sector” in the trading hours of the international market. Chinese futures market will affect the international market more profoundly, the political and economic situations and the factors such as the financial and industrial changes will also be reflected in the domestic commodity market more timely and adequately, and the capacity of the market for transferring risks will be further enhanced. As the night trading is about to be introduced, a DCE official has answered the questions on the issues of concern in the market.
Q: What are the reasons for DCE to introduce the night trading?
A: The introduction of the night trading is an important way to promote the reform and development of the futures market in Dalian as well as a necessary move to refine the futures products, better serve the industries, make effective preparations for the opening up of the market and enhance the international influence of the market. It is of great significance for the healthy and steady development of the futures market in Dalian.
In the international market, in recent years foreign exchanges have improved the market efficiency and enhanced market competitiveness by increasing trading hours, covering more time zones and expanding and serving broader global market. Compared to the international market, the domestic futures exchanges generally feature short trading time, with the futures prices affected to some extent in absorbing and adequately reflecting the market information, restricting the further improvement of the market’s hedging capacity and international influence.
After over 20 years of development, the futures market in Dalian has seen the continuously increasing size, smooth running and sound functioning, with some products having highlighted the advantage in striving for the pricing power in the international market. Thus, under the new situation of the accelerated opening up and constantly deepened internationalization of the current market, the introduction of the night trading will not only cover more time zones in the trading, more directly and timely transfer the political, economic, financial and other factors affecting the market prices in the international market to the domestic futures market, help further deepen the price discovery and hedging functions of the market and improve the international influence of the market, but also lay foundation for DCE’s advantageous products going global as soon as possible and the domestic exchanges expanding services in the international market in the future.
Q: What products will be introduced in the night trading? Why are RBD Palm Olein and Coke the first products to be listed on the night trading?
A: In selection of the products for the night trading, DCE has fully considered the advantages of the relevant products in striving for the pricing power on the international market in the future, the urgency of the market demands and other factors. During the preparatory market surveys and opinions solicitation, market participants believed that among the 15 futures products listed on DCE, with brisk trading, extensive market participation and high-degree attention of industrial clients and investors at home and abroad, the products of soybeans, soybean meal, soybean oil, corn, palm oil, polyethylene, PVC, PP, coking coal, coke and iron ore have the basis for the night trading. The products can be divided into two categories: the products highly interacting with the international market and the products with unique advantages in striving for the pricing power on the international market when the market is opened up in the future.
In order to ensure a smooth start for the trading night, at the initial stage DCE has selected the trial products of the RBD Palm Olein, one of the products of oils and oilseeds with strong linage with the international market, and the Coke, one of the products with unique advantage in striving for the pricing power on the international market in the future. The two products are suitable for the trial operation as they feature moderate market sizes, adequate correlation with other products and relatively small impact on the current trading strategies of the investors. With the prudent and positive principle and the guideline of “trials preceding promotion” and on the basis of sound operation and experience accumulation, DCE will expand and promote the night trading to other products as soon as possible so as to meet the demands of the market and the investors, and DCE will issue separate notices on launching the following products.
Q: What preparations has DCE made for launching the night trading?
A: In 2012 DCE initiated the research work in the night trading, and since 2013, DCE has carried out a lot of visits and surveys among the members, industrial clients and individual clients, extensively soliciting the opinions from the market on whether to introduce the night trading, the arrangements for the trading time, the traded products and other issues, in a bid to ensure that DCE’s systems and other arrangements for the night trading meet the market demands.
The technical system is the basis for the smooth operation of the night trading, and the extension of the trading time caused by the night trading will lead to the changes to the core systems and peripheral systems, making new requirements for the safety and bearing capacity of the technical system. Since the second half of 2013, DCE has initiated the preparations for the technical system of the night trading, involving a total of 24 subsystems such as the trading system, the electronic funds transferring system, the member service system, the delayed market information and the funds matching. Meanwhile, the emergency plans for the production main center, local disaster recovery, remote disaster recovery and other aspects have been deployed and exercised, and the technical system has been ready for the night trading.
In the aspect of market training, DCE launched the 1.5-month-long simulation trading with the participation of the whole market from March 18, and all the futures products listed on DCE were included. The simulation trading has further familiarized the member units and the clients with the overall plan and the business processes of the night trading, providing favorable conditions for the smooth introduction of the night trading.
In order to ensure the smooth operation of the night trading, DCE has set up 31 systems and work processes for the night trading such as the operational guidelines and the management system for operation and maintenance, organized the training sessions for the relevant businesses internally and repeatedly carried out exercises in the simulation tests for the night trading. Currently, DCE is active in market promotion and training for the night trading, in a bid to adapt the futures companies and the market clients to the changes to the trading modes caused by the night trading as soon as possible.
Q: What positive effects will the night trading have on the market, and what would you remind the investors to pay attention to at the moment?
A: The market surveys have shown that the member units and clients have responded positively to DCE’s introduction of the night trading, hoping that DCE could bring other products on the night trading as soon as possible. Currently a lot of international exchanges have extended the trading time to more than 20 hours, and the investors are able to seek investment opportunities and better hedge against the risks from a larger global perspective, thus forming the diversified trading patterns. Domestic futures markets generally feature short trading time. During the surveys some members and clients proposed to extend the trading hours of domestic futures markets so as to enhance the effect of hedging and increase the investment opportunities as under the new situation of economic globalization and market internationalization, the international political, economic, financial and other situations have had more direct and profound impacts on the domestic market. Therefore, in addition to enhancing the international influence, the introduction of the night trading will also bring positive impacts to the market adequately absorbing the information to form more reasonable prices, improving the hedging effect and capability of the market and providing more investment opportunities.
It should be noted that after the introduction of the night trading and the extension of the trading hours, some changes will take place in the market liquidity, the information transmission cycle and patterns and the correlation between the products, and bring corresponding transformations and impacts to the trading habits, patterns and strategies and risk management of the hedgers and investors, who should pay adequate attention and learn about and adapt to the changes as soon as possible. In addition, along with the introduction of the night trading, DCE has accordingly adjusted the related rules and the business processes, and the market participants are requested to understand the corresponding adjustments and changes.
