Futures Market in China

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History of Futures in China

Main article: History of Futures in China

On Oct. 12, 1990, the establishment of the China Zhengzhou Grain Wholesale Market introduced the futures trading for the first time in the People’s Republic of China[1]. On June 10, 1991, the Shenzhen Metal Exchange was established, and it started trading on Jan. 18, 1992. About four months later, the Shanghai Metal Exchange also started trading on May 28, and by the second half of 1993, the number of futures exchanges topped 50. China’s first futures brokerage company, Guangdong Wantong, was established in September of 1992.

China's futures exchange market has developed quickly in recent years. After a record high of 10.06 trillion yuan in 1995, the annual turnover slipped to 1.6 trillion yuan in 2000. It then hit a new high of 10.84 trillion yuan in 2003. Thereafter, the annual turnover kept growing, having reached 41 trillion yuan in 2007, up 95 percent over 2006, according to the China Futures Association (CFA). Analysts attributed the rapid growth of domestic futures markets to fluctuating agricultural product prices in international markets, a surging demand for agricultural products and positive central government policies.[2]

Laws Governing Futures

Main article: Laws Governing Futures Trading in China Futures trading in China is governed by the Administrative Regulations on Futures Trading and accompanying administrative measures separately regulating futures exchanges, futures brokerage companies, and futures industry personnel, as well as other trial measures related to IB (introductory broker) business, financial futures clearing business, and risk management requirements.

Regulators and CFA

Main articles: China Securities Regulatory Commission and China Futures Association

On Nov. 4, 1993, the State Council of the People's Republic of China issued “the Notice on Restricting a Blind Development of Futures Markets,” specifying the State Council Securities Commission (SCSC) as a monitoring body and the China Securities Regulatory Commission (CSRC) as an implementation body for the futures market in China. The CSRC is an enterprise unit of the SCSC, the State authority responsible for exercising centralized regulation of both securities and futures markets in China[3].

The China Futures Association (CFA) was established on Dec. 29, 2000, and it is registered and headquartered in Beijing. The effort to set up the CFA started in 1995, based on the "Social Group Registration and Management Act" for the establishment of a nationwide industry self-regulatory organization, as a non-profit social group corporation. The CFA is supervised by the China Securities Regulatory Commission and other agencies that regulate state social groups. CFA's foundation was intended to promote market development.[4]

Futures Exchanges

Main article: Futures Exchanges in China

In accordance with the Administrative Regulations on Futures Trading, the State Council of the People’s Republic of China has so far approved the establishment of four futures exchanges: Dalian Commodity Exchange (DCE), Shanghai Futures Exchange (SHFE), Zhengzhou Commodity Exchange (ZCE), and China Financial Futures Exchange (CFFEX).

In China, a futures exchange can take the form of either a membership organization or a corporation. Currently, the DCE, SHFE, and ZCE are taking the form of a membership organization, and the CFFEX is organized as a corporation, whose shares are equally owned by the DCE, SHFE, ZCE, Shanghai Stock Exchange and Shenzhen Stock Exchange.

Futures Contracts

Main article: Futures Contracts in China

There are currently 19 commodity futures contracts officially trading on the Dalian Commodity Exchange (DCE), Shanghai Futures Exchange (SHFE), and Zhengzhou Commodity Exchange (ZCE), while CSI 300 Index futures contract is mock-trading on the China Financial Futures Exchange (CFFEX).

In addition to those 20 contracts already listed, live pig (DCE), steel (SHFE), rice (ZCE) and other futures contracts are proposed and reviewed to be launched sometime soon. There is no futures options contact listed in China at this point.

Futures Trading

Main article: Futures Trading in China

Chinese futures exchanges are required by law to enforce futures margin requirements, T+0 no-liability settlement requirement, price limits, position limits, large account position reporting requirement, simultaneous or rolling delivery, and risk reserve requirement.

Meanwhile, Chinese futures companies are required to have clients sign both risk disclosure and client agreement and deposit futures margin before starting to trade, and they are permitted to receive only market and limit orders via writing, phone, internet, and dedicated pc terminal. Chinese futures companies are also responsible for completing delivery procedures on behalf of clients.

Futures Brokerage Companies

Main article: Futures Brokerage Companies in China

As of March 31, 2008, there are 165 futures brokerage companies in China. In 2007, the top 3 companies, in terms of both volume and turnover, were the China International Futures Co., Ltd., Henan Wanda Futures Brokerage Co., Ltd. , and Zhejiang Yongan Futures Brokerage Co., Ltd.

References

  1. Zhengzhou Commodity Exchange. CZCE.
  2. Dalian Holds World's 2nd Biggest Agricultural Products Exchange. Futures Industry Magazine.
  3. About the CSRC. China Securities Regulatory Commission.
  4. Chinese Futures Association Established. People's Daily.