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In order to further adapt to the spot market conditions and give better play to the role of the futures market in serving the industries, Dalian Commodity Exchange (DCE) issued a notice on Dec 22, announcing that it has revised the “Egg Futures Contract of Dalian Commodity Exchange” and the “Detailed Rules of Dalian Commodity Exchange for Delivery”, etc. the revised contract and rules will come into effect starting from JD1703 Contract.
The revisions mainly include improving the delivery modes and the supporting systems, modifying rules to allow delivery on any day during the delivery month, allowing the delivery on vehicle board method, adjusting the validity periods of the warehouse receipts and achieving automatic cancellation of warehouse receipts, adding more contract months, revising the relevant rules for the delivery quality standards, and further optimizing the plans for dealing with epidemics, etc.
In terms of modifying and improving the delivery modes and the supporting systems, DCE has modified rules to allow delivery on any day during the delivery month. The selling client can take the initiative to apply for delivery on any day from the first trading day to the penultimate trading day in the delivery month. DCE will match the two sides to complete the delivery. Different from the traditional rolling delivery, the system of any day selectable for delivery in the whole delivery month can be done through either the standard warehouse receipt delivery method or the delivery on vehicle board method; the duration for the deliveries will be extended to the whole month, the last trading day of the egg futures contracts will be pushed back to the third trading day before the last trading day in the delivery month, and the last delivery day will be accordingly pushed back to the last trading day of the delivery month. In terms of registration and cancellation of warehouse receipts, a brand new mode will be adopted. The warehouse receipts of the selling clients can be used for delivery on the day of registration or the following day, and the DCE will automatically cancel the warehouse receipts of the buying clients after the transfer of ownership. Under the new rules, in order to ensure the settlement price for the one-off delivery does not deviate from the transaction price at the end of the same month, the calculation method of the settlement price of egg futures for one-off delivery has also been adjusted, using the weighted average price for the last ten trading days in the current month. In the case of fewer than ten trading days, the weighted average price for all the trading days shall be calculated. In addition, to support the system of any day selectable for delivery in the whole delivery month and achieve dynamic management of warehouse receipts, DCE has accordingly adjusted the validity period of the warehouse receipts.
In addition to the existing standard warehouse receipt delivery, the delivery on vehicle board method has been newly introduced. It is a method of physical delivery, in which the seller loads the goods onto the boards of the buyer’s vehicles at the delivery site designated by DCE. DCE implements management of sellers’ qualification in the delivery on vehicle board, and the sellers applying for the delivery on vehicle board should obtain the qualification in advance. The site of the delivery on vehicle board is designated by DCE. The settlement of payment and delivery of goods under this method can be carried out through DCE or independently by the buyer and seller after negotiation.
In terms of the revision to the contract, the most highlighted change is adding the July and August contract months to the current ten contract months. In addition, according to the conditions of the spot market, the delivery quality standards have been adjusted, with the grades of egg weights, sensory indicators, quality inspection, sampling, packaging and other delivery quality standards improved. To support the delivery on vehicle board, the quality indicators have been further specified. The procedures for settling quality disputes have been improved. The plan for dealing with epidemics has been optimized, and when an epidemic breaks out, the risks will be allocated according to whether the ownership has been transferred and the delivery of goods and payment will be handled in a timely manner.
An analyst with the research institute of Xinhu Futures said that with regard to all revisions to the contract and rules for the egg futures, adding the system of any day selectable for delivery in the whole delivery month and the delivery on vehicle board are the core of the modification, which gives rise to the adding of July and August Contracts and other amendments accordingly. The analyst also said that as domestically most egg trade adopts the delivery on vehicle board and there are significant distribution centers and large-sized wholesale markets in all major producing and sales areas, the delivery on vehicle board is undoubtedly more adaptable to the egg, a fresh product. In addition, the introduction of the delivery on vehicle board will effectively reduce the costs for the trading companies in participating in the egg delivery, make them more active in taking part in the futures market and further increase the supplies available for delivery.
An official of the agricultural products business division of DCE said that as the egg was the first domestic futures of a fresh animal product, in order to be prudent, DCE designed relatively strict systems at the beginning of the contract’s listing. Since the egg futures were listed, DCE has continued to conduct tracking and assessment for the futures and actively listened to the opinions and suggestions of the market, so as to get well prepared for continuous and further improvement of the contract and rules. In the two years after the listing, the egg futures have operated steadily and DCE has accumulated relatively abundant experience in its management, which has created favorable conditions for revising the egg contract. This year, in various forms such as site surveys, special seminars and emails, DCE has solicited opinions from its board of directors, industrial clients, investors, member units, delivery warehouses and quality inspection institutions. A total of 12 seminars have been held in Shenyang, Dalian, Zhengzhou, Hangzhou, Kaifeng, Jinan, Shanghai, Beijing, Guangzhou, Shenzhen and other places. The simulated delivery on vehicle board has been carried out at Xinli Egg Wholesale Market in Dongguan. After the revision, the egg futures and spot markets will integrate further, the egg delivery process will better conform to the production and operation characteristics of laying hens farming and egg trade. The supplies available for delivery of the egg contracts will be increased significantly, the costs for the clients to participate in delivery will be reduced remarkably, and the capacity of the egg futures for serving the spot enterprises will be effectively improved. After the operation of the new delivery system is tested in practice, DCE will further research the feasibility of adjusting the system of position limit and commission fees for the egg futures.
Since the listing on November 8, 2013, the egg futures have run smoothly in general. The market participants have expressed full support and acceptance for the revisions during surveys and soliciting opinions. The revisions to the contract and related rules will come into effect from the JD1703 Contract, which has not been launched yet. As a result, the modification will not affect the present operation of the market.
