Commodity index futures are approaching and are expected to become the first product listed in Guangzhou Futures Exchange
On June 30, Guangzhou Futures Exchange and China Securities Commodity Index Company signed a strategic cooperation framework agreement.
In the past two months, Dalian Commodity Exchange, China Financial Futures Exchange and Shanghai Futures Exchange have respectively reached strategic cooperation with China Securities Commodity Index Company.
Earlier, a person from Guangzhou Futures Exchange told a reporter that “Guangzhou Futures Exchange has already carried out the research and development of commodity index futures products under the guidance of the China Securities Regulatory Commission. The China Securities Regulatory Commission has designated the China Securities Commodity Index Company to be responsible for national compilation of commodity indexes."
So far, China still lacks an internationally recognized and authoritative commodity index. Although the current futures exchanges have compiled commodity futures indexes but only limited to their own listed products, there is no cross-market and cross-product national commodity index.
Gan Han, a professor at the School of Economics of Xiamen University, believes that the compilation of a unified national commodity index based on the increasingly complete variety of commodity futures and the growing market in China. It can be expected that the futures market will launch related commodity index futures and commodity index options.
A number of interviewed experts also told reporters that, compared to carbon emission futures, which have not yet been perfected by spot trading, commodity index futures are more likely to become the first product of the Guangzhou Futures Exchange. In addition, innovative products such as foreign exchange futures and electronic futures are also expected to become reserve products.
Compile a unified commodity index across markets and products
In the past two months, China Securities Commodity Index Company has reached strategic cooperation with Guangzhou Futures Exchange, DCE, Shanghai Futures Exchange, and China Financial Exchange. As early as December last year, it had reached strategic cooperation with Zhengzhou Commodity Exchange. China Securities Commodity Index Company has signed a strategic cooperation agreement with five domestic futures exchanges and the futures market monitoring center.
Zheng Hu, Chairman of the Guangzhou Futures Exchange, stated that the two parties should take the opportunity of signing a strategic cooperation framework agreement to carry out comprehensive cooperation in the fields of index product cooperative development, information service sharing, market promotion, equity investment, etc., jointly do a good job in commodity indexes as well as related futures product development and listing work.
Cairen Sun, Chairman of China Securities Commodity Index Co., said that China Securities Commodity Index Co., Ltd. will actively cooperate and develop in coordination with futures exchanges such as the Guangzhou Futures Exchange in accordance with the deployment requirements of the China Securities Regulatory Commission under the guidance of the strategic cooperation framework agreement. Build a high-standard commodity index system and an index product system with credibility and international competitiveness, and provide high-quality services for the construction of the Xiongan and the Guangdong-Hong Kong-Macao Greater Bay Area, helping the capital market to serve the real economy.
China Securities Commodity Index Company was registered and established in Xiongan in December 2020. It was jointly funded and established by Shanghai Futures Exchange, Zhengzhou Commodity Exchange, Dalian Commodity Exchange, and China Financial Futures Exchange, with a registered capital of 1 billion yuan.
As a securities and futures financial institution directly managed by the China Securities Regulatory Commission, the main business functions of China Securities Commodity Index Co., Ltd. are the compilation, operation and maintenance, release, authorization and related data information and technical services of commodity indexes, macro indexes, government bonds and other financial indexes, and build a Chinese commodity index system as a high quality and high standards system.
In recent years, global commodity indexed investment has developed rapidly, and a large number of commodity index funds have emerged from this. With the continuous enrichment and improvement of China’s commodity futures product system, it has become an urgent task to study the establishment of commodity index companies and compile national unified commodity indexes.
According to the reporter's understanding, all futures exchanges have compiled commodity futures indexes limited to their listed products. Among them, DCE has launched the agricultural product futures index series and the industrial product futures index series. The index series include composite indexes, component indexes, thematic indexes and single commodity indexes. DCE has also launched related derivatives on the basis of these indexes in order to meet the trading demands from investors.
So far, China still lacks an internationally recognized and authoritative commodity index. Therefore, it is urgent to launch an internationally recognized nationally unified commodity index. This index can not only be used as a leading indicator of economic operation, but also an important indicator of the capital market and the futures market investment tools.
An industry analyst pointed out, “The compilation of a unified commodity index can not only set up various derivatives on the basis of the index to meet the hedging and investment needs of market futures traders, but also provide early warning signals for the macro economy. At the same time, it can also help improve the international influence and pricing power of China's futures market as well as promote the international trade."
Among the international commodity indexes, the United States Commodity Research Bureau Index (CRB) is the most representative and has been widely recognized and highly praised by governments, researchers and investors from various countries. In addition, internationally well-known commodity indexes include S&P-Goldman Sachs Commodity Index (S&P GSCI Index), Dow Jones-Swiss Union Bank Commodity Index (DJ-UBSCI Index), etc., but no commodity indexes represents China currently.
After 30 years of development, China’s commodity futures and options market has continued to expand. The listed products cover multiple industrial fields such as agricultural products, basic metals, precious metals, energy and chemicals have formed commodity futures that are more complete and consistent with the stage of China’s economic development. The product system and the influence of some futures products in the international market has continued to increase, which has laid the foundation for China to compile a national unified commodity index and listed commodity index futures.
Some experts analyzed and pointed out that the relevant commodity index should be compiled from different links of the industry, concept, and industrial chain, and from multiple perspectives, so as to provide relevant departments and market institutions with clearer leading indicators for the total and structural problems in the economy. At the same time, relevant futures and derivatives will be launched as soon as possible to provide more abundant tools for entity companies to manage commodity price risks in their daily operations
Commodity index futures are expected to become the first product
Since May, the State Council executive meeting has repeatedly named "bulk commodities" to crack down on accumulation and price hikes. In response to the recent large fluctuations in commodity prices, some exchanges have also issued market risk warning announcements many times.
On June 10, the chairman of the China Securities Regulatory Commission, Huiman Yi, pointed out that since the fourth quarter of last year, the prices of some bulk commodities have continued to rise, and the price discovery and risk management functions of related bulk commodity futures have been better utilized.
Huiman Yi said that due to various reasons, the pricing benchmarks of some commodities in international trade mainly rely on international spot indexes and over-the-counter market quotations. Call on relevant international institutions to establish a more rigorous and scientific index compilation mechanism, improve the transparency and binding force of quotations, and jointly improve the efficiency of commodity price discovery, so as to better maintain the stability and security of the global industrial chain supply chain.
Xufeng Luo believes that “At present, the listing of carbon emission option futures on the Guangzhou Futures Exchange is a high probability event, but there is still uncertainty about whether it is the first listed product. I believe that the Guangzhou Futures Exchange will adopt more flexible and market-oriented Variety selection mechanism."
In fact, compared to carbon emission option futures and electricity futures, which currently lack the basis for spot trading, commodity index futures based on futures prices are easier to implement.
Gan Han pointed out that commodity index derivatives often have the advantages of low cost, wide risk coverage, good liquidity and easy understanding. They are important tools for investors to manage market systemic risks and carry out investment portfolio allocation. They may become the important factor in the futures market in the future."
Commodity index futures are on-market derivatives for indexed investment. The compilation of commodity indexes is mostly based on futures prices, not spot prices. Commodity index futures have the characteristics of both commodity futures and financial futures. The products are highly standardized and have low correlation with mainstream investment instruments such as stocks and bonds. Incorporating them into asset allocation can diversify risks, hedge against inflation, and attract more institutional investors participated in the transaction.
In December last year, Xinghai Fang, vice chairman of the China Securities Regulatory Commission, stated at the China (Shenzhen) International Futures Conference, we should accelerate the development and listing of commodity index and commodity index futures options, and support relevant institutions to develop more commodity index funds, commodity index ETFs and other investment product.
Xinghai Fang said that there are still deficiencies in current commodity investment in residents’ wealth management. For example, China has no listed commodity index futures products, and the number of commodity options is relatively small. The functions of commodity index funds and commodity index ETFs need to be improved. The development of commodity index funds and commodity index ETF markets has just started. The proportion of asset management products is still small, and the management capabilities of financial institutions need to be improved.
According to the latest statistics from the China Futures Industry Association, the cumulative trading volume of the national futures market from January to May this year was 3.125 billion, with a cumulative trading volume of 239.34 trillion yuan, an increase of 51.49% and 77.80% year-on-year respectively.
With industrial customers, institutional funds and foreign investors entering the market, the volume of the futures market has shown explosive growth in the past year. As of the end of April this year, customer equity in the futures market reached 1024.352 billion yuan, breaking through the trillion level for the first time in history. In the past year, customer equity in the futures market has increased by nearly 400 billion yuan.
At present, the domestic derivatives market is in a period of rapid development, with market liquidity and the proportion of institutions increasing year by year, and it has become an important tool for financial and industrial institution risk management.
According to data from the Mid-term Association, as of now, China has listed 93 futures and options, which basically cover the main areas of the national economy such as agricultural products, metals, energy and chemicals, and finance. Among them, the trading volume of commodity futures has ranked first in the world for many years. In 2020, China’s futures market will launch a total of 12 new varieties, the number hitting a record high level. In addition, there are alumina, tungsten, magnesium, aluminum alloy, rare earth, coffee, potato, scrap, chicken, wood and other varieties. R&D and listing work is progressing in an orderly manner.