The development of any new thing is the road of twists and turns, and to reach maturity before experiencing the same stage, just through the various stages of time is different, China's copper futures market is no exception. January 8, 1992 Shenzhen Nonferrous Metals Exchange officially opened, in May 1992, the Shanghai Metal Exchange opened and launched the copper medium and forward contracts, in March 1993 changed to copper futures contracts, marking the official birth of China's copper futures market, exactly 30 years ago. This paper analyzes the characteristics and changes of China's copper futures market in different periods of development to provide participants with practical basis for their practical work in the future.

I. Birth and development period

China's futures market in general has not experienced this stage for a long time, and it is generally believed that it started around 1991 and ended in early 1995. But this paper believes that the copper futures phase should be the opening of the two exchanges as a starting point, to the end of the outbreak of the Sumitomo incident in 1996 (In June 1996, Hamanaka, the chief trader of Sumitomo Corporation of Japan, attempted to manipulate the copper futures market, with a long position loss of up to $4 billion.).

In the meantime, driven by economic overheating and profit, the futures market fell into blind development soon after its birth. There are three main reasons for this: First, with the transformation of China from a planned economy to a market economy and the gradual liberalization of market prices, the futures market, as an emerging form of China's market economy, quickly attracted a large number of participants. Secondly, driven by interests, the "money-making effect" of the futures market that leads to short-term wealth has led to a steady inflow of various kinds of hot money, resulting in the emergence of its blind development. Thirdly, the domestic regulation of the futures market was at the stage of absorbing and learning from foreign experience, so it was inevitable that it was not in place and lagged behind. Specifically for the copper futures market, the situation is as follows:

(1) participants to speculation as the mainstream, following the trend of foreign markets, domestic copper futures prices from the listing of the beginning of less than 20,000 yuan / ton all the way up to the middle of 1995, more than 30,000 yuan / ton, a popular saying at the time is "80% of the people do copper futures do not even know what electrolytic copper is", visible speculation prevails. And the market trend to forced positions, seriously detached from the fundamentals of the time, especially the supply and demand of copper itself.

(2) The scale of copper production enterprises are very small, and the annual output of electrolytic copper of a single enterprise is basically less than 100,000 tons. Due to the early stage of the market economy, the information flow in the domestic market is not smooth, the market development is low, the vast majority of enterprises will be the futures market as one of the main channels for spot sales, coupled with the speculative preferences of market participants, the last trading day of the spot month before the over-sold by the short often occurs, the proportion of delivery usually accounted for more than 10% of the enterprise's production.

(3) the basic function of the futures market has not been fully utilized, the vast majority of speculators to lose money out, participation in the enthusiasm has been greatly frustrated. As the domestic copper processing industry was in its infancy, the demand for buying and hedging was insufficient, and the hedgers mainly sold and hedged, and suffered losses during the period of upward price movement of copper. It was not until the outbreak of the Sumitomo incident in 1996 that the real functionality of the futures market slowly began to be understood and accepted during the long bear market that began in mid-1995.

II. The period of standardization and rectification

This period began with the implementation of State Council Document 1993(77) (Notice of the State Council on Resolutely Stopping the Blind Development of the Futures Market) and State Council Document 1994(69) (Notice of the General Office of the State Council Transmitting the Request of the Securities Commission of the State Council on Resolutely Stopping Certain Opinions on Blind Development of the Futures Market). The first task of rectification was to regulate international futures trading by futures brokers; the core of rectification was to reduce the number of listed and traded varieties, merge futures exchanges and regulate the futures brokerage industry, which did not end until 2000. In the copper market, the Shenzhen Nonferrous Metals Exchange was closed in 1998, and its business was merged into the Shanghai Metal Exchange, which then merged with the Shanghai Grain and Oil Exchange and the Shanghai Commodity Exchange to form the Shanghai Futures Exchange (hereinafter referred to as the Shanghai Futures Exchange, or SHFE in English), and the price of copper went through a bear market for six years, hitting a low of less than 14,000 yuan per ton in November 2001, although the market turnover surged during that period. Although the market turnover shrunk dramatically during this period, the following profound changes took place.

(1) The number of purely speculative participants continues to decline. A number of medium and large speculators unrelated to the copper industry have left the market one after another, as can be seen from the significant reduction in the rankings of certain futures brokers in terms of turnover and positions, which have been replaced by the entry of a number of intermediaries engaged in the trade of copper in physical goods, especially international trade. They are not copper production and consumption enterprises, but through long-term contracts of import and domestic futures market sales combined profit.

(2) the hedger's team is growing and mature. As the period was the first period of rapid development of the copper industry since the reform and opening up, the original copper production enterprises continued to expand production capacity, new copper enterprises are also born, and the rise of copper processing enterprises represented by Jiangsu and Zhejiang, so that the value-protection function of the futures market has become more and more popular, and hedging has become the mainstream of the market transactions.

(3) the futures market speculative atmosphere weakened, the futures market basically did not occur in a major forced position phenomenon. In addition to the strengthening of market regulation, which has led to the departure of most pure speculators from the market, the gradual rationalization and maturity of participants is another important reason.

(4) As the domestic copper raw material gap is getting bigger and bigger, a large number of imported raw materials need to lock in processing fees through the futures market, which gives rise to a large number of buy foreign, sell domestic ratio transactions, that is, the embryonic cross-market arbitrage, the timing of its entry into the market is mainly based on the ratio of domestic and foreign copper futures prices for the same period as a reference.

III. Quasi-mature period

This period is roughly between 2001 and 2009. The futures market became active after years of sluggishness, with futures turnover bottoming out and steadily increasing, and the number of listed varieties gradually increasing. The copper futures market has once again taken a step ahead and undergone radical changes, as reflected in the following aspects:

(1) Tongling Nonferrous Metals, Jiangxi Copper, Yunnan Copper and other enterprises of a number of copper brands in the London Metal Exchange (LME) registration, get a direct access to the international market, "pass", a number of state-owned copper enterprises have been directly engaged in overseas futures hedging qualifications for copper import and export of a variety of commodities to lock in the profits provide a more convenient channel, the domestic and international markets have basically realized the benefits of the futures market. The domestic and foreign markets have basically realized a comprehensive barrier-free flow. This is of epoch-making significance in the development history of copper futures in China.

(2) Unilateral speculators in Jiangsu, Zhejiang and other places of the lobbyist, but not limited to copper, but in the stage of the hot varieties wandering, and can only short-term to attract the eyeballs of the participants. The strength of its participation in the macroeconomic situation, once the national macro-controls work, economic growth slowdown, most of them will withdraw from the futures market to re-invest the funds into the original industry.

(3) A large number of cross-market arbitrage appeared, and become the mainstream of market transactions, so that the domestic and foreign markets are basically integrated. They bear the risk of price fluctuations in the foreign copper futures market, and pass that risk to the domestic. They generally have sufficient cash flow, and with the combination of spot trade, its trade volume in Shanghai and the main domestic spot market occupies an absolute advantage, but in the foreign market is often the financial institutions of the short and medium-term capture object, is a real "second hand", which leads to foreign financial institutions disguised as profits from the Chinese futures market.

(4) The form of hedging has also seen profound changes, gradually tending to mature. Several major domestic copper producers are importing more and more raw materials, and long-term contracts account for the majority of the ratio, they basically signed long-term sales contracts with large domestic copper producers, monthly purchase of raw materials and sales of electrolytic copper overlap part of the realization of the natural monthly average price hedging, i.e., the purchase of foreign raw materials prices according to the LME monthly average price (generally spot month) minus the processing fee settlement, the domestic sales price according to the SHFE (the corresponding monthly average price plus contractually agreed upon price). That is, the purchase price of foreign raw materials is settled at the monthly average price of LME (generally the spot month) minus the processing fee, and the domestic sales price is settled at the corresponding monthly average price of SHFE plus the contractually agreed premium and discount, so as to ensure the return of the processing fee, and what needs to be insured is only the part of the supply and sales imbalance. Because of the enterprise's production is relatively stable, for the uneven part of the purchase and sale price through the futures market in different months of a buy and sell to adjust, not only make full use of the futures market price discovery function, but also greatly save the cost of preservation. This is essentially a buy foreign sell domestic cross-market arbitrage and the same market arbitrage across the period, so the biggest impact on the part is not a market price changes, but the domestic and foreign market price changes and the same market price difference changes. For the self-produced copper raw materials part of the combination of the company's profit target set at the beginning of the year and price forecasts strictly insured, do not give the opportunity to long forced positions.

(5) The delivery ratio of the futures market is getting smaller and smaller, and price discovery and other functions are becoming more and more perfect. Several major domestic copper producers of delivery and production ratio has dropped from the initial more than 10% to less than 2%, basically comparable with the mature foreign markets. As the LME's trading can be done for more than 60 months, the domestic forward trading is relatively easy, and the position of value-protection operation can be digested by cross-market arbitrageurs. The domestic market has really stepped into a quasi-mature period.

IV. Maturing period

(1) This period roughly began in 2009, with the following recent important events.

1. On August 31, 2018, the Securities and Futures Commission (SFC) announced that it had approved SFE to carry out copper futures options trading, and the contract was officially listed for trading on September 21, 2018. Thus, copper options have become the first domestic industrial commodity futures options variety. The listing of copper options is of great significance for promoting the risk management level of China's non-ferrous metal industry and enhancing the function of the futures market to serve the development of the real economy. Firstly, it is an effective supplement to the copper futures market, which is conducive to enriching risk management tools and improving the risk management level of non-ferrous metal enterprises; secondly, it is conducive to perfecting the investor structure of the copper futures market, fostering and developing institutional investors, and promoting the coordinated development of the on-market and off-market; and thirdly, it is conducive to China's construction of an international financial center to enhance the influence of copper's international pricing, optimize the industrial structure, and safeguard sustainable development of the industry.

2. On November 19, 2020, international copper futures were officially listed for trading. The listing of international copper futures contracts brings new risk management tools to the copper spot market in China's domestic and overseas bonded zones, and is also a comprehensive introduction of foreign traders under the background of the national "double-cycle" and the use of "dual contracts" to improve the pricing influence of international copper in China. The influence of the Chinese pricing of international copper.

3. other relevant supporting measures. on May 28, 2018, the SHFE standard warehouse receipts trading platform (now renamed as SHFE integrated business platform) built by SHFE was officially launched, and the first batch of standard warehouse receipts trading business for two varieties, namely, copper and aluminum, was launched. The SHFE Comprehensive Business Platform gave full play to its functions to realize the linked development of the futures market and the spot market, and helped the exchange to build into a world-class comprehensive futures and derivatives exchange. In September 2018, according to the relevant provisions of the Measures for the Administration of Options Market Makers of the Shanghai Futures Exchange, after rigorous evaluation, the SHFE agreed to allow 18 companies to become market makers for copper options, with the aim of improving the liquidity of the market. On September 28, 2020, SHFE issued a notice stating that since October 19, it would start to develop treasury bonds as margin business, which is of great significance, not only conducive to expanding the scope of collateral for margin business, but also effectively reducing the cost of funds for futures trading and improving the liquidity of the market.2022 On June 17, 2022, SFE issued an announcement of "Shanghai Futures Exchange Copper Cathode Futures Contract (Revised Version)", deciding that the contract for copper cathode futures would be revised in accordance with the provisions of the "Regulations on the Management of Options Market Makers of Shanghai Futures Exchange". On June 17, 2022, SHFE issued the "Shanghai Futures Exchange Copper Cathode Futures Contract (Revised Version)" announcement, deciding that starting from December 21, 2022, only standard warehouse receipts are allowed to be generated according to the new delivery grade. From June 19, 2023, the stock of No. 1 standard copper warehouse receipts shall be canceled and converted to spot. This amendment mainly involves the relevant provisions of the delivery grade of Shanghai copper futures of SHFE, the underlying of both Shanghai copper and international copper futures contracts is copper cathode, and this amendment will unify the delivery standard of Shanghai copper futures with that of international copper futures, and will harmonize the provisions of the "Shanghai Futures Exchange Copper Cathode Futures Contract" regarding the "delivery grade". "Standard grade": copper cathode, conforming to the national standard GB/T467-2010 No. 1 standard copper (Cu-CATH-2), of which the content of the main ingredient copper plus silver is not less than 99.95%. The phrase "to be deleted, and to make corresponding modifications to the expressions involving delivery grade in the annex of the contract" was deleted. At present, A-grade copper has become a mainstream product in the domestic spot market. The output of A-grade copper has exceeded 70% of the total output of copper cathode, therefore, the provisions of deleting No. 1 standard copper from the delivery grade of Shanghai copper and retaining only A-grade copper as a deliverable will help to promote the product upgrading of the industry and contribute to the high-quality development of the copper industry. Secondly, it is to benchmark the quality standard of copper futures deliverables with mainstream copper futures at home and abroad, and the quality standard of copper futures deliverables of LME, New York Mercantile Exchange (COMEX) and Shanghai International Energy Exchange (INE) are A-grade copper of European standard, 1-grade electrolytic copper of American standard and A-grade copper of Chinese national standard, etc., which have higher quality requirements for deliverables and the rules have been tested by the market. Therefore, after the revision of this contract, the quality of Shanghai copper deliverables will be further benchmarked against international standards, while the standards of Shanghai copper and international copper futures deliverables will be unified. This amendment will help domestic copper futures to further strengthen the linkage under the "dual contract" model, and also effectively eliminate the concerns of market participants about the different delivery grades of Shanghai copper futures and international copper futures, and help relevant industrial enterprises to better utilize futures tools to manage market risks.

(2) Emergence of formal over-the-counter transactions

In order to meet the needs of the futures market to serve the development of the real economy and to guide futures companies to set up subsidiaries to carry out the pilot work of risk management service-based business, in accordance with relevant laws, regulations and the provisions of the Articles of Association of the China Futures Industry Association, and in accordance with the principles of "Pilot First, Gradual Progress and Steady Advancement".

Starting from February 1, 2012, futures companies may set up risk management companies to carry out pilot work on the following businesses with the main focus on risk management services: basis difference trading; warehouse receipt services; cooperative hedging; pricing services; market making business; and other businesses related to risk management services. Many of these businesses are point-to-point over-the-counter (OTC) transactions based on prices in the futures market, where both parties agree on the details of the transaction in a contractual manner, and do not need to transact all the transactions in the futures market.

On December 24, 2019, Dacheng Non-Ferrous Metals Futures ETF was listed and traded on the Shenzhen Stock Exchange (hereinafter referred to as the SZSE), becoming the second listed commodity futures ETF in China, providing investors with a new tool for asset allocation and anti-inflation. The ETF adopts the full replication method to track the SFE Non-Ferrous Metals Futures Index, which is the first and only index fund in China that can directly invest in non-ferrous metals futures. The investment strategy of the ETF is a passive "buy-and-hold" management strategy, tracking the long-term trend of the index through the holding of the constituent contracts of the SFE Non-Ferrous Metals Index. Compared with direct investment in commodity futures, the investment threshold of this ETF is relatively low and the underlying investment is transparent, i.e. 6 futures contracts of Shanghai Copper, Shanghai Zinc, Shanghai Nickel, Shanghai Aluminum, Shanghai Lead and Shanghai Tin + money market instruments (including interbank certificates of deposit). After obtaining the fund issuance approval from the Securities and Futures Commission (SFC) on August 27th of that year, Dacheng Non-ferrous Futures ETF was issued from September 3rd to October 18th, and was established on October 24th, with a size of RMB 311 million; its feeder fund was issued from September 16th to October 25th, with a size of RMB 878 million. The combined size of Dacheng Non-Ferrous Futures ETF and its feeder fund is nearly RMB 1.2 billion, which shows investors' demand for investment in commodities and their recognition and welcome for non-ferrous metals futures ETF as an innovative investment tool. The listing of Dacheng Nonferrous Metals Futures ETF not only opens the door to indexed investment in commodity futures, but also further strengthens the foundation of interconnection between SFE and SZSE. For the securities fund market, the non-ferrous metal futures ETF enriches investment varieties and hedging tools, opens up the investment path of the futures market, and meets the needs of investors for inflation risk protection and broad asset allocation. For the futures market, the product further realizes the connection between securities funds and the futures market, optimizes the investor structure of the futures market, and helps enhance the ability of the futures market to serve the real economy.

V. Summary

(1) Need to improve the place

Compared with the international mature futures market, the domestic copper futures market itself, and its related supporting market still need to vigorously develop and improve, at this stage should be specific in the following aspects:

1. Settlement price trading.

For real enterprises, the settlement price of futures contracts is the price basis for many spot contracts. But the current settlement price of domestic copper futures contracts is the volume-weighted average price, although it is also with the transaction in constant change, but in the unilateral market, the settlement price and the closing price gap is very large, it is not possible to buyers and sellers of the transaction at the right time fair price. Therefore, the spot buyers and sellers in a party has the right and the settlement price for the spot contract price basis for buying and selling, must be informed of the other party before the opening, if the other party needs to hedge, can only be operated through their own judgment of the day's price trend, the risk of man-made is very large. But if the domestic copper futures market to launch the settlement price trading, it is necessary to change the current settlement price generation. In addition, in order to ensure that all settlement price trading instructions all transactions, there must be an intermediate market maker involved.

2. Exchange rate futures.

As the internationalization of China's renminbi is accelerating, the exchange rate risk has been increasing. China is a net importer of copper, all kinds of copper commodity imports, according to the amount of metal calculation has exceeded the scale of ten million tons. In order to give the majority of import and export enterprises, including copper enterprises to avoid the risk of the stage, the launch of the RMB exchange rate futures is very necessary. As the dollar is the world's largest currency, the vast majority of China's commodity imports and exports denominated in U.S. dollars, the first launch of the yuan against the dollar exchange rate futures is unquestionable. In this way, enterprises in international trade, for the forward exchange rate collection, payment, the risk can be resolved in advance through the exchange rate futures market, to ensure that the profits of international business.

(2) Current Influence and Prospects

Copper is recognized as one of the most mature futures varieties in China, and the futures price has become the most authoritative basic price for spot trading in the domestic market, and has rightly become the "touchstone" for the development of China's futures market. As the futures market is becoming increasingly internationalized, it is crucial for its development to draw on the experience of mature foreign markets. Shanghai International Energy Exchange (INE) launched the first international copper futures in China with "dual contract" mode, which filled the gap of using RMB-denominated hedging tools in international trade for the copper industry chain, and played an important role in serving the real economy and boosting the internationalization of the futures market. At present, more and more enterprises have begun to use international copper futures for hedging, and some enterprises have begun to use international copper futures for pricing, and the function of international copper futures has been gradually brought into play. For the copper smelting enterprises with export delivery business under the re-export, they can buy Shanghai copper and sell international copper through the futures market to lock the pricing difference when the export window opens, or buy international copper and sell Shanghai copper to earn spread profits when the import window opens, and greatly suppress abnormal fluctuations in the price difference between domestic and foreign markets, and will gradually enhance the influence of global pricing of domestic copper futures. Although China's copper futures market to reach full maturity there is still a long way to go, but China is the world's number one consumer of copper. I believe that through the industry's unremitting efforts, in the near future, Shanghai as China's largest copper distribution center, SHFE and INE will become one of the Asia-Pacific region and even the world's copper pricing center.