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Dalian Commodity Exchange (DCE) issued a notice to revise the rules for the trading margin rates and the price limits in the situation of consecutive price limits on the same direction. The revised rules shall come into effect from the settlement on August 24, 2016.
According to the notice, the amendments to the rules requires the trading margin rate and the price limits in the situation of consecutive price limits on the same direction to be linked with the contract's price limits. That is, when a contract sees no continuous quotes on one side at the price limit on a certain trading day(the N trading day), its price limits on the second and the third trading days shall be increased in fixed proportions, and the margin rate shall be adjusted accordingly.
In general, for the trading day after the first price limit (the N+1 trading day), the price limit shall be the previous trading day's price limit plus 3%, and at the settlement of the N trading day, the trading margin rate shall be the N+1 trading day's price limit plus 2%. If the N+1 trading day sees another price limit reached on the same direction, the price limit for the N+2 trading day shall be the price limit for the N+1 trading day plus 2%. The margin rate at the N+1 trading day's settlement shall be the N+2 trading day's price limit plus 2%. If the price continues to hit the price limit on the same direction after the N+2 trading day, from the N+3 trading day, the price limit and margin rate shall remain the same as the N+2 trading day, until the contract no longer reaches price limit on the same direction.
For iron ore and soybean oil futures, for example,under the revised rules, the price limits of the iron ore futures in the same direction occurring for the first, second, third and fourth trading day consecutively shall be 6%, 9%, 11% and 11% respectively and the trading margin rates shall be 8%, 11%, 13% and 13% respectively. According to some market participants, the adjustments have simplified the rules, making the rules clearer.
