The No. 1 soybean, No. 2 soybean, soybean meal, soybean oil futures and options of Dalian Commodity Exchange (DCE) were formally made available to overseas traders as specified domestic products on December 26, 2022. This is an important measure for China’s futures market to serve the domestic and overseas soybean and oilseeds industries and help ensure the security of the soybean industry chain and supply chain. It is also the first time for a Chinese futures exchange to introduce overseas traders to participate in the futures and options trading of the whole soybean product suite, attracting considerable attention from different parties. The journalist learned that overseas clients are opening accounts and trading smoothly, indicating a good start for the first trading day after the opening-up of the soybean product suite.
Twenty-six overseas clients traded on the first day
It's learned from DCE that even during the Christmas holiday, overseas clients continued to pay much attention to and actively participate in the soybean futures and options trading on DCE. On December 26, a total of 26 overseas clients from Switzerland, Indonesia, Malaysia, Singapore, Hong Kong SAR and other countries and regions engaged in the trading of soybean product suite on the first day of opening-up.
China Commercial Foreign Trade (Singapore) Pte. Ltd. (“CCFT”) is one of the overseas clients traded on the first day. It engaged in the trading of Contract A2305 of No.1 soybean futures, Contract M2305 of soybean meal futures and Contract Y2305 of soybean oil futures through the carrying-brokerage of Straits Financial to Xinhu Futures.
According to Zhang Yang, Managing Director of CCFT, since the company's business includes international trade of agricultural commodities including soybean oil, especially exports to China, it needs to conduct risk management in China. “The opening-up of the soybean product suite of DCE can help many cross-border supply chain service providers like us to hedge, facilitating the industry circulation and enhancing the flexibility of global trade,” said Mr. Zhang.
Mr. Zhang also noted that since the company had previously participated in RBD palm olein futures trading on DCE, it is familiar with relevant trading procedures and rules. As the opening pattern of RBD palm olein futures is also applicable to the soybean product suite, it’s easy and smooth for the company to trade the soybean futures this time.
Apart from CCFT, many overseas companies took part in the trading through the carrying-brokerage of an overseas broker BPI Financial Group Limited (BPI) to Minmetals Futures Co., Ltd,. Fan Songhua, the head of relevant business unit of BPI, told the journalist that different client groups such as traders and asset management clients would adopt different trading strategies based on their own needs. For example, some industry enterprises would carry out crushing spread trading strategy among soybean, soybean oil, and soybean meal based on the actual demand of spot trade and long-term research on the markets of Chicago Board of Trade (CBOT) and DCE to better avoid risks.
According to relevant overseas intermediaries, overseas clients including industry clients were very excited about the opening-up of soybean product suite of DCE. The continuous opening-up of China’s futures market to overseas traders has provided new price benchmarks and hedging tools for participants in the global commodity markets.
Past experience has laid a solid foundation for the opening-up of relevant products
It's learned that soybean and soybean meal futures were the first products listed on DCE in 1993 when it started its operation. After nearly three decades of continuous growth, the soybean futures market of DCE is operating steadily and giving its functions into full play, thus laying a solid foundation for its opening-up.
On the one hand, as China is the world’s largest importer and consumer of soybean as well as the largest producer and consumer of soybean meal and soybean oil, the market size of related products has also increased significantly. In the first six months of 2022, the soybean futures product suite of DCE ranked top 40 in terms of the trading volume among global agricultural products. In particular, the soybean meal futures has ranked first for many consecutive years. Although No. 1 soybean, No. 2 soybean, and soybean oil options have been traded for a relatively short period, the average daily open interests in November have risen by 274%, 119% and 926% respectively compared with August.
On the other hand, large grain and oil companies at home and abroad are deeply involved in risk management through DCE market. The basis trading mode of “futures price of DCE + premium/discount” has been widely adopted in the soybean industry. In particular, Cargill, Louis Dreyfus and other multinational companies in grain and oil which set up business in China, have also established domestic entities to use soybean, soybean meal and soybean oil futures for hedging. Some of them even have more than 10 years of experience in this field.
Mr. Chen Shangyi from International Business Department of Huatai Futures also shared his insights. The soybean futures product suite of DCE is known as the most actively traded agricultural product futures in the world for a long time. It not only provides pricing references for domestic soybean industry, but acts as risk management tools for the soybean crushing industry. As soybean options product suite has become increasingly mature in recent years, the soybean meal options has grown to be one of the most liquid agricultural options in the world. Businesses such as trading, settlement, risk control, exercise have been proved reliable. The promulgation of the Futures and Derivatives Law of the People’s Republic of China in 2022 has provided a strong legal guarantee for the opening-up eight soybean futures and options to overseas traders, and for bringing into full play the functions of the futures and options markets.
Mr. Zhong Heyi, Executive Director of the Institutional Services Department of COFCO Futures, told the reporter that, while domestic and foreign oil processing and trading companies have an increasing demand for using futures and options tools to avoid the risk of price fluctuation, the opening-up of soybean product suite of DCE to overseas traders can provide overseas clients with diversified hedging tools covering the upstream and downstream of the entire industry chain. All the soybean futures and options products have sufficient liquidity. The profits from crushing imported GMO soybeans can be locked in ahead of time through the trading of No. 2 soybean, soybean oil, soybean meal futures and options. The opening-up of No. 1 soybean futures and options also provides an effective risk management tool for diversifying non-GMO soybean imports. In the future, the basis trading model with the No.1 soybean futures price as the benchmark is expected to be integrated into the global trade of non-GMO soybeans.
All the participants rush to seize the opportunity, promising a bright future of DCE’s opening-up
According to relevant interviewees, DCE, as the first exchange in China that opens up the listed futures products to overseas traders, has provided full and strong support for overseas traders and accumulated rich experience in this field. As the soybean product suite has been made available to overseas traders, and other high-level and institutional measures for opening up are being implemented, the futures companies and overseas intermediaries are also actively developing various kinds of clients including overseas enterprises, seeking to seize the new market opportunities and stay ahead of the curve. Up to December 26, 2022, a total of 73 overseas brokers from 11 countries and regions have completed the filing for the carrying-brokerage business on DCE through 40 futures companies.
Mr. Chen Shangyi said, as soybean series futures and options have become specified domestic products, and as policies such as making commodity futures and options available for qualified foreign investors (QFIs) are being implemented, the needs of overseas clients for trading and hedging in China’s futures market have been satisfied. As a “guide” for overseas traders to access China’s futures market, futures companies should work closely with DCE to strengthen publicity and education targeting international market participants, organize online and offline promotion activities, disseminate knowledge on the laws and regulations of China’s financial market, and provide more professional support to overseas clients to meet their diverse needs such as compliance, business, technology, operation of cross-border transactions and hedging.
Mr. Fan Songhua agreed that, the ongoing increase of specified domestic products and the access to commodity futures for QFIs have greatly increased the overseas clients’ interests and willingness to participate in China’s futures market. “In the past, some of our clients kept close watch on the soybean market of DCE. This time, with the internationalization of eight products, their demand for direct participation in the trading is satisfied. Going forward, we will maintain close communication with DCE and develop more overseas client groups so as to build a ‘fast track’ for overseas clients to engage in the Chinese market, and make more Chinese futures contracts available for the world.”
