FangQuant › Rules
I. The Basics
(1)
Trade at Settlement (TAS) is an order type that allows a trader to enter an order to buy or sell an eligible futures contract (at a price equal to the current day’s settlement price for that contract. The eligible contracts are defined by the Exchange.
(2)
TAS orders may only be matched with other TAS orders for the same contract. During central auction, TAS orders will be matched by the principle of “maximum trading volume”; during continuous trading, TAS orders will be matched by the principle of time priority.
(3)
After TAS orders are executed, the transaction price will be calculated according to the order matching rules, and determined after the daily settlement price of the eligible contract is set.
(4)
For eligible contracts, a TAS order may be indicated as “open”, “close today” or “close previous”; and “general” or “hedging”.
(5)
TAS orders cannot be attached with the properties of fill-or-kill (FOK) or fill-and-kill (FAK) for the time being.
(6)
TAS orders are available during the central auction and the first trading session (including the continuous trading hours. Currently the first trading session runs till 10:15 a.m.). At the end of the first trading session, all unfilled TAS bids and offers will be automatically cancelled by the system.
II. Special Notes
(1)
The trading access and minimum and maximum order sizes of eligible contract apply to the TAS orders in that contract. As for the position limit, hedging quota and trading limit, TAS orders are calculated combining with other orders in the eligible contract.
(2)
If a TAS-eligible contract is trading at the limit price, TAS orders in the contract will not be matched by the principle of “close-out orders first”, and will not affect the determination of Limit-locked Market.
(3)
Market data of TAS-eligible contracts published during the trading hours does not include the turnover or trading volume from TAS transactions, while the open interest of TAS transactions is included in the change of open interest of eligible contracts. Statistics following market close and settlement do reflect TAS transactions in the turnover and trading volume of the corresponding contracts.
(4)
For TAS transactions, the Exchange may, during the trading hours, calculate the margins to be frozen or released based on the settlement price of the eligible contract of the previous trading day and apply the larger-side margining to such margin. For positions formed from TAS transactions, the Exchange may, during daily settlement at market close, calculate and collect margins based on the settlement price of the eligible contract of the current day and apply the larger side margining to such margin.
III. TAS Order Examples
(1) Opening New Position – Example 1
Assume a client has no existing position in SC2008, and places a TAS order for 40 lots in SC2008 as “long, general, open”, which is then matched with an existing TAS order for short 15 lots. As a result, the client will hold 15 lots of long, general, and today’s position in SC2008. The remaining 25 lots will be automatically canceled by the system if they cannot be matched within the first trading session.
If at market close the settlement price of SC2008 is determined to be 285 yuan/barrel, then the 15 lots filled through the TAS order will be traded at 285 yuan/barrel.
(2) Opening New Position – Example 2
Assume a client has no existing position in SC2009, and submits a TAS “short, general, open” order for 10 lots. After 5 lots are filled, the client will hold 5 lots of short, general, and today’s position in SC2009. If now the client places and executes a limit order for 3 lots of SC2009 as “long, general, and close today”, then the client will hold 2 lots of short, general, and today’s position in SC2009.
If at market close the settlement price of SC2009 is determined to be 300 yuan/barrel, then the 5 lots filled through the TAS order will be traded at 300 yuan/barrel.
(3) Closing Out Today’s Position
Assume a client has no existing position in SC2009, and submits a limit order for 10 lots of SC2009 as “short, general, and open”. After 4 lots are filled, the client will hold 4 lots of short, general, and today’s position in SC2009. If then the client places and executes a TAS “long, general, close today” order for 1 lot, then the client will hold 3 lots of short, general, and today’s position in SC2009.
If at market close the settlement price of SC2009 is determined to be 305 yuan/barrel, then the 1 lot filled through the TAS order will be traded at 305 yuan/barrel.
(4) Closing out Previous Positions
Assume a client holds 50 lots of long, hedging, and previous position in SC2010, and submits a TAS “short, hedging, close previous” order for 50 lots. Once 40 lots of the order are filled, the client will hold 10 lots of long, hedging, and previous position in SC2010.
If at market close the settlement price of SC2010 is determined to be 310 yuan/barrel, then the 40 lots filled through the TAS order will be traded at 310 yuan/barrel.
Q&Ason TAS for Crude Oil Futures
1. TAS Trading Mechanism
Q1: What is TAS?
A: TAS, short for Trade at Settlement, is an order type that allows a trader to buy or sell an eligible futures contract during specified trading hours at the current day’s settlement price or a certain number of ticks of the outright above or below that price.
Q2: Why does INE launch TAS orders?
A: TAS order aims to provide an efficient and effective risk management tool in the market which can lower traders’ risk management costs, so as to enhance the proportion of brick-and-mortar enterprise investors and the crude oil price influence.
For brick-and-mortar enterprises, the futures settlement price is often used as the benchmark price in spot trading. These enterprises used to place orders frequently to simulate the settlement price, which is difficult to execute as well as inefficient for hedging. TAS orders enable investors to trade at or near the settlement price during specified trading hours, which will greatly reduce the uncertainty they used to face when hedging. As a result, they can exercise better risk management easily with TAS.
In western financial markets, in addition to brick-and-mortar enterprises, institutional investors including ETFs and long-term capital management funds also use TAS for position transfers which require lower fees for hedging purposes. Moreover, it will also reduce the short-term adverse effect of position transfers to the market.
To sum up, TAS trading will enhance the hedging efficiency for entities as an efficient risk management tool, attract more diversified market participants and enhance the proportion of brick-and-mortar investors. As it is more convenient for global investors to refer to China’s futures prices, the price influence will surely be improved.
2. TAS for Crude Oil Futures
Q1: Who can placeTAS orders for crude oil futures?
A: Any trader of crude oil futures can place TAS orders.
Q2: Whichcrude oil futures contracts are eligible for TAS orders?
A: TAS order is only available to the first and the second nearby crude oil futures contracts (hereinafter referred to as the eligible contracts), and will no longer be available after the market close on the eighth trading day preceding the last trading day of the eligible contract.
Q3: What is the price quoteof TAS orders for crude oil futures?
A: TAS orders are only for the current day’s settlement price of the eligible contract, and any other prices of a certain number of ticks above or below that price will not be accepted for the time being.
Q4: What are the trading hours of TAS orders for crude oil futures?
A: TAS orders for crude oil futures are available during the opening auction and the first trading session (including the continuous trading hours. Currently the first trading session runs through 10:15 a.m.). At the end of the first trading session, all unmatched TAS orders are automatically cancelled by the system.
Q5: What are the matching rules of crude oil TAS orders?
A: TAS orders may only be matched with other TAS orders for the same contract. During central auction (i.e., call action), TAS orders will be matched by the principle of “maximum trading volume”; during continuous trading, TAS orders will be matched by the principle of time priority.
Q6: What are the attributes of TAS orders for crude oil futures?
A: Same as other orders,TAS orders may be indicated as “open,” “close today,” or “close previous”; and “general” or “hedging.”
Q7: Can other properties be attached with a TAS order for crude oil futures?
A: TAS orders cannot be attached with the properties of fill-or-kill (FOK) or fill-and-kill (FAK) for the time being.
Q8: How will INE collect the margin ofa TAS trade for crude oil futures?
A: During the trading hours,INE will calculate the margin to be frozen or released for a TAS trade based on the previous settlement price of the underlying contract, and will include the margin into the larger-side margining.
At the end of a trading day, INE will collect the margin for a TAS trade based on that day’s settlement price of the underlying contract, and will include the margin into the larger-side margining.
Q9: How will INE collect the transaction fees of a TAS trade for crude oil futures?
A: Please refer to the provisions on TAS-eligible crude oil futures contracts.
Q10: Howto access the market data of TAS tradesfor crude oil futures?
A: Traders can find relevant market data on the official websites and member service systems of SHFE and INE, or through the apps ofotherdata providers. Market data of TAS-eligible contracts published during trading hours does not include turnover and trading volume from TAS transactions. Statistics following market close and settlement do reflect TAS transactions in the turnover and trading volume of the corresponding contracts.
Q11: If the eligible contract is traded only by TAS order, how would the daily settlement price be determined?
A: If the eligible contract is traded only by TAS order, it will be considered as no trade on that day, and its daily settlement price will be determined in accordance with the method of determining the settlement price for futures contracts with no trade price stated in the Clearing Rules of the Shanghai International Energy Exchange.
3. TAS Order Examples
Q1: How to open positions using TAS?
A: Example 1:
Assume a client has no existing position in SC2008, and places a TAS order for 40 lots in SC2008 as “long, general, open”, which is then matched with an existing TAS order for short 15 lots. As a result, the client will hold 15 lots of long, general, and today’s position in SC2008. The remaining 25 lots will be automatically cancelled by the system if they cannot be matched within the first trading session.
If at market close the settlement price of SC2008 is determined to be 285 yuan/barrel, then the 15 lots matched through the TAS order will be traded at 285 yuan/barrel.
Example 2:
Assume a client has no existing position in SC2009, and places a TAS order for 10 lots as “short, general, open”. After 5 lots are matched, the client will hold 5 lots of short, general, and today’s position in SC2009. If now the client places and executes a limit order for 3 lots of SC2009 as “long, general, and close today” , then the client will hold 2 lots of short, general, and today’s position in SC2009.
If at market close the settlement price of SC2009 is determined to be 300 yuan/barrel, then the 5 lots matched through the TAS order will be traded at 300 yuan/barrel.
Q2: How to close out today’s position using TAS?
Assume a client has no existing position in SC2009, and places a limit order for 10 lots of SC2009 as “short, general, and open”. After 4 lots are matched, the client will hold 4 lots of short, general, and today’s position in SC2009. If now the client places and executes a TAS order for 1 lot as “long, general, close today”, then the client will hold 3 lots of short, general, and today’s position in SC2009.
If at market close the settlement price of SC2009 is determined to be 305 yuan/barrel, then the 1 lot matched through the TAS order will be traded at 305 yuan/barrel.
Q3: How to close out previous positions using TAS?
Assume a client holds 50 lots of long, hedging, and previous position in SC2010, and places a TAS order for 50 lots as “short, hedging, close previous”. Once 40 lots of the TAS order are matched, the client will hold 10 lots of long, hedging, and previous position in SC2010.
If at market close the settlement price of SC2010 is determined to be 310 yuan/barrel, then the 40 lots matched through the TAS order will be traded at 310 yuan/barrel.
Q4: What would be the trade price if the eligible contract is traded only by TAS order?
If there are only 20 lots traded in SC2010 and all of them are traded by TAS order, SC2010 will be considered as no trade on that day. The settlement price is determined by the method of determining the settlement price for futures contracts with no trade price stated in the Clearing Rules of the Shanghai International Energy Exchange. If the settlement price of SC2010 is 305 yuan/barrel, then the 20 lots filled through the TAS order will be traded at 305 yuan/barrel.
4. Case Studies: Using TAS Orders for Hedging
Case Study 1:
On September 12, refinery A purchased 100,000 tons of medium sour crude oil from trader B, and it was agreed that the oil would be delivered on October 15-24 at the average settlement price of SC1912 in October with a discount rate of RMB 7 per barrel. Refinery A was supposed to pay after the market close on October 31.
As the OPEC cut their production and supply went tight, refinery A believed that the price of SC1912 would go up. To hedge the risk of higher prices in October, refinery A decided to long 720 lots of SC1912 on September 12 at 437.9 yuan per barrel.
The SC1912 begun trading on October 8 after China’s national holidays. In October, refinery A closed out the positions using TAS orders. (100,000 tons of medium crude oil are equivalent to 720,000 barrels, or approximately 720 lots of futures contracts. Since there were a total of 18 trading days in October, 40,000 barrels or 40 lots were hedged in each trading day.)
|
Date
|
Futures Market
|
Price
(yuan/bbl)
|
Gain on Futures Positions
(yuan/bbl)
|
Barrels Calculated in the Spot Market
|
|
Sept. 12
|
Long 720 lots
|
437.9
|
N/A
|
N/A
|
|
Oct. 8
|
Short 40 lots using TAS
|
432.9
|
-5
|
40,000
|
|
Oct. 9
|
Short 40 lots using TAS
|
440
|
2.1
|
40,000
|
|
…
|
…
|
…
|
…
|
…
|
|
Oct. 16
|
Short 40 lots using TAS
|
455.7
|
17.8
|
40,000
|
|
Oct. 17
|
Short 40 lots using TAS
|
448.5
|
10.6
|
40,000
|
|
…
|
…
|
…
|
…
|
…
|
|
Oct. 30
|
Short 40 lots using TAS
|
454.2
|
16.3
|
40,000
|
|
Oct. 31
|
Short 40 lots using TAS
|
452.2
|
14.3
|
40,000
|
|
Total
(in October)
|
Short 720 lots using TAS
|
449.57 (monthly average)
|
11.67
|
720,000
|
|
Outcome
|
The gain in the futures market is 449.57-437.9=11.67 yuan/barrel.
The settlement price was locked in to 437.9 yuan/barrel.
The actual trading price was 437.9-7=430.9 yuan/barrel.
|
|||
Case Study 2:
On September 12, refinery A purchased 100,000 tons of medium sour crude oil from trader B, and it was agreed that the oil would be delivered on October 15-24 at the average settlement price of SC1912 in October with a discount rate of RMB 7 per barrel. Refinery A was supposed to pay after the market close on October 31.
The SC1912 begun trading on October 8 after China’s national holidays. As the price went up, refinery A believed it was overvalued and would drop at some day in late October. Therefore, on October 11, refinery A decided to short the futures when the price was over 450 yuan/barrel and to lock in the price when it dropped below 450 yuan/barrel.
As shown in the table below, by using TAS orders, refinery A shorted the same amount of oil as calculated in the spot market on October 11-16, and closed out on October 18-23 to lock in the settlement price. (100,000 tons of medium crude oil are equivalent to 720,000 barrels, or approximately 720 lots of futures contracts. Since there were a total of 18 trading days in October, 40,000 barrels or 40 lots were hedged in each trading day.)
|
Date
|
Settlement Price
(yuan/bbl)
|
Barrels Calculated in the Spot Market
|
Futures Market
|
Gain on Futures Positions
(yuan/bbl)
|
Barrels Calculated in the spot Market after Hedging
|
|
Oct. 8
|
432.9
|
40,000
|
40,000
|
||
|
…
|
…
|
…
|
|||
|
Oct. 11
|
451.8
|
40,000
|
Short 40 lots using TAS
|
N/A
|
|
|
Oct. 14
|
464.8
|
40,000
|
Short 40 lots using TAS
|
N/A
|
|
|
Oct. 15
|
459.4
|
40,000
|
Short 40 lots using TAS
|
N/A
|
|
|
Oct. 16
|
455.7
|
40,000
|
Short 40 lots using TAS
|
N/A
|
|
|
Oct. 17
|
448.5
|
40,000
|
40,000
|
||
|
Oct. 18
|
444.9
|
40,000
|
Close out 40 lots using TAS
|
6.9
|
80,000
|
|
Oct. 21
|
446.3
|
40,000
|
Close out 40 lots using TAS
|
18.5
|
80,000
|
|
Oct. 22
|
442.4
|
40,000
|
Close out 40 lots using TAS
|
17
|
80,000
|
|
Oct. 23
|
444.7
|
40,000
|
Close out 40 lots using TAS
|
11
|
80,000
|
|
…
|
…
|
…
|
|||
|
Oct. 31
|
448.56
|
40,000
|
40,000
|
||
|
Total
|
449.57
（monthly average）
|
720,000 |
|
Outcome
|
The gain of 160 lots in the futures market is/4=13.35 yuan/barrel.
Considering the profit in the futures market, the average settlement price per barrel was brought down from 449.57 yuan to 446.6 yuan.
The actual trading price was 446.6-7=439.6 yuan/barrel.
|
5. Case Study: TAS Trading in Fund Management by ETFs
On November 8, market maker A purchased one million shares of crude oil ETF from a fund manager (the minimum purchasing volume is 500,000 shares). These shares would be effective on November 9, and be settled according to the actual buying price of from the exchange by the fund manager. On November 8, the settlement price of SC 2012 was 462.1 yuan/barrel, and thus the price of one share was 0.9242 yuan.
To avoid price fluctuations, market maker A shorted two lots of crude oil futures at 461.6 yuan/barrel on November 8. On November 9, the futures price went up by 1% to 466.7 yuan/barrel (assume that the secondary market move simultaneously with the futures market). The market maker sold all the EFT shares and closed out the positions on crude oil futures. Suppose that the fund manager purchased the shares from the exchange at 465 yuan/barrel, the overall profit/loss of the market maker was calculated in the table below (without considering any transaction fees):
|
Profit/Loss
(yuan)
|
Spot Market
|
Futures Market
|
||
|
Buy
|
465*2,000=930,000
|
Short
|
461.6*2,000=923,200
|
|
|
Sell
|
0.9242*1.01*1,000,000
=933,400
|
Close out
|
466.7*2,000=933,400
|
|
|
Total
|
933,400-930,000=3,400
|
923,200-933,400=-10,200
|
||
|
Outcome
|
The market maker lost 6,800 yuan in total due to the difference between the short price in the futures market and the purchasing price in the spot market.
|
|||
With TAS, the market maker could require that the fund manager should trade the SC2012 contract by using TAS orders on November 9, and the market maker would short the same amount of contracts using TAS orders too. Suppose that the settlement price on that day was 465.9 yuan/barrel, the overall profit/loss of the market maker is calculated in the table below (without considering any transaction fees):
|
Profit/Loss
(yuan)
|
Spot Market
|
Futures Market
|
||
|
Buy
|
465.9*2,000=931,800
|
Short
|
465.9*2,000=931,800
|
|
|
Sell
|
0.9242*1.01*1,000,000
=933,400
|
Close out
|
466.7*2,000=933,400
|
|
|
Total
|
Breakeven
|
|||
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