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On December 9, 2022, the China Securities Regulatory Commission (CSRC) announced that the No. 1 soybean, No. 2 soybean, soybean meal, soybean oil futures and options of Dalian Commodity Exchange (DCE) have been added to the list of specified domestic products and will be open to overseas traders as of December 26, 2022. This means that soybean will become the first product in China's futures market to open up the entire sector as specified domestic products. Consequently, global enterprises in the soybean industry will have access to China's futures market for risk management.
The soybean market performance lays solid foundation for the opening up. In terms of spot, the international soybean market tends to grow in recent years. From 2010 to 2021, the global soybean production has increased from 260 million tons to 369 million tons, while the soybean meal production has risen from nearly 170 million tons to 248 million tons. The soybean oil production has reached nearly 59.23 million tons from 41.47 million tons, and the trading volume has also increased. Meanwhile, China has become the world's largest importer of soybean and producer of both soybean meal and soybean oil, playing an important role in the global soybean consumption market. In 2021, China produced 16.4 million tons of soybean, and imported 96.52 million tons of soybean, which accounted for more than half of the global imports. It also produced about 79 million tons of soybean meal and 18 million tons of soybean oil, making up nearly 30% of the global production.
With regard to futures, soybean futures is the first futures product listed on DCE, which has witnessed the innovative development of DCE and its service to the real economy for 29 years. After years of effort, DCE's product line of soybean derivatives has been gradually enriched, featuring steady operation, full play of functions, and growing influence, thus providing powerful tools for many market entities in the soybean industry to manage risks and maintain steady operation. Statistics show that in the first six months of 2022, the soybean meal, soybean oil, No. 1 soybean and No. 2 soybean futures of DCE ranked 1st, 3rd, 18th and 31st respectively in terms of trading volume among global agricultural futures and options. The soybean meal futures in particular has ranked first for several consecutive years. The average daily open interests of the four futures products were recorded as 184,800 lots, 40,100 lots, 2,310,100 lots and 713,400 lots respectively, with price correlation between futures and spot over 0.95. The accumulated production of soybean processing plants participating in soybean meal and soybean oil futures trading exceeds 90% of the total production in China.
After five years of growth, the soybean meal options of DCE has become the most traded agricultural options in the world. By November 2022, its average daily open interests this year has reached 578,200 lots, nearly five times the figure in 2017. Although No. 1 soybean, No. 2 soybean and soybean oil options have only been listed for a relatively short period, their market size has grown sharply, with the average daily open interests this November rising by 274%, 119% and 926% respectively compared with August. An increasing number of market entities have achieved specific and individualized risk management goals by participating in relevant options trading.
Many market participants said it is another important measure to help China's futures market deepen its opening-up and serve enterprises worldwide by including No. 1 soybean, No. 2 soybean, soybean meal, soybean oil futures and options as specified domestic products. This measure will also provide global enterprises in the soybean industry with an approach to directly engage in China's futures market so that the industry can obtain more diverse and efficient pricing and risk management tools. In addition, it will help promote the deep integration of China's futures market with the global soybean industry chain, offering comprehensive market information of China, the world’s major soybean consumer, to the world in a timely manner so as to better meet the growing hedging needs of the industry and enterprises and improve China’s ability of serving the global soybean industry.
According to the person in charge of the relevant business, DCE has successfully opened iron ore futures and palm oil futures and options to overseas traders, and has made it possible for Qualified Foreign Investors (QFI) to trade the futures and options of seven products including No. 1 soybean, No. 2 soybean, soybean meal, soybean oil, RBD palm olein, iron ore, and linear low density polyethylene (LLDPE), thus laying a solid institutional foundation and accumulating wide experience in the opening up.
After thorough research on the domestic and overseas markets, DCE will adhere to the principle of institutional opening up, adopt the mature scheme of RBD palm olein futures and options and other specified domestic products, and keep the original contracts and basic systems such as trading, settlement, and risk control unchanged, in terms of opening up No. 1 soybean, No. 2 soybean, soybean meal, soybean oil futures and options to overseas traders.
Specifically, regarding the management of participants, the approach for overseas traders to engage in trading is made simple by referring to that for domestic participants. Overseas traders should follow the real-name registration system and each should have only one client code. In terms of funds management, the account shall be opened domestically, foreign currencies can be used as futures margins. The sale or purchase of foreign exchange will only apply to the settlement of profits and losses of real transactions, commissions and other funds, and the basic settlement system remains unchanged; the basic logic related to risk control and handling of trading default remains constant. As there is no bonded trading and less physical delivery demand of such products, it is stipulated in the delivery management rules that the positions of No. 1 soybean, No. 2 soybean, soybean meal and soybean oil futures held by entity clients who cannot receive or issue VAT invoices shall not be delivered.
At present, DCE is making preparations in an orderly manner to ensure the smooth trading of overseas traders on such products and the stable operation of the market.
