In 2019, the domestic futures market ushered in rapid expansion and development.

As of December 13, there have been 14 new varieties listed in the futures market since this year, a record high. In the first 10 months, the total market capital of futures investment and trading has reached 545 billion yuan, an increase of 25.58% over the beginning of the year and in the same period, the total market positions of futures have reached 21 million. A record high for both.

In addition, the number of international products in futures market has increased to 4; in terms of institutional investors, 34 basic endowment insurance fund portfolios have entered CFFEX to participate in the hedging of financial futures, 3 ETF products with commodity futures as the target have been approved after 4 years, etc.

"This year’s opening up of the futures market and the rapid expansion of varieties are unprecedented in these years." The head of a futures company told reporters.

However, compared with the mature futures market in Europe and America, there is still a certain gap in China’s futures market.

"Taking CME as an example, there is still a high gap between the domestic futures market and CME in terms of the types of underlying assets and the number of futures and options trading instruments." The person in charge told reporters. For example, there are 102 types of CME basic assets but only 64 in China; there are 713 CME futures options trading instruments and only 70 in China.

He said bluntly that the gap is mainly based on two factors: first, the trading varieties in China’s futures market mainly focus on the level of bulk commodities, and there is a huge gap with CME in terms of the number of financial futures; second, in terms of derivatives, China focuses on the research and development of futures, and lags behind CME in terms of options research and development -- for example, CME foreign exchange option futures and equity index futures have 90 and 87 options respectively, but China’s number is zero and 4, respectively. The "scarcity" of China’s financial futures also leads to the continuous expansion of the gap. In 2017, the U.S. futures market accounted for 142.26% of GDP, while China only had 1.02%.

"Behind this is the different investor structure in the futures and options market between China and the United States. As far as the customer structure is concerned, the proportion of institutional customers in China is only 3%, far lower than the proportion of more than 80% in the United States; as far as the position structure is concerned, the proportion of corporate institutional positions in China’s futures market is only 54%, also lower than that of spot traders in the United States, and about 87% of swap dealers and asset management institutions. "He analyzed. Therefore, the pricing discourse power of many Chinese futures in the global trading system is difficult to be effectively improved.

Recently, Fang Xinghai, vice chairman of the CSRC, revealed that the CSRC has formed a two-year reform and innovation development plan, including accelerating the internationalization of mature varieties, enhancing the international pricing influence of the futures market, further increasing the supply of varieties, enriching the derivatives tool system, improving the regulatory capacity and assisting in the early introduction of the futures law.

On the causes of the downturn of futures hedging in Chinese Enterprises

A visual epitome of the large gap between China and the US futures market is that the proportion of Chinese listed companies using futures options derivatives to avoid risks is far lower than that of the US, which accounts for 86.5% in the US and only 8.47% in China.

"Many listed companies in China have not yet established the operation mechanism of futures hedging operation." The head of brokerage business department of a large domestic futures company told reporters. Previously, they visited dozens of Listed Companies in different industries in China, and found that most of the board of directors of listed companies lacked people who knew about futures hedging knowledge, so they did not consciously require enterprises to set up a special futures hedging department, but almost all the board of directors of Listed Companies in the United States would require management to establish a comprehensive futures hedging system.

The reason is that when many listed companies in the United States seek financing from banks and other financial institutions, the latter will first see whether the enterprises lock the price risk and profit level of raw material procurement and downstream product sales through futures option hedging operation, and then consider whether to provide corresponding financing support. Because these financial institutions found through historical data that the profit volatility of enterprises adopting futures option hedging is relatively small, and the operation stability is higher.

Coincidentally, most U.S. listed companies regard interest rate risk as the most important risk exposure. For example, more than 83% of the real economy enterprises in the S & P 1500 index will hedge the risk of financing interest rate fluctuation through interest rate futures option operation, followed by foreign exchange rate, about 54% of the listed companies take corresponding futures option hedging measures; the third is the risk of commodity price fluctuation, about 23% of listed companies have hedged.

"In China, there is still a lack of financial futures and options derivatives to help enterprises avoid interest rate risk." The above executives said frankly and vexingly that even if they tried to integrate all kinds of financial futures options and helped some enterprises design a set of financial derivatives operation plans to reduce interest rate risk, they would be put on hold due to "objective factors".

This is quite obvious in many local state-owned enterprises. The reason is that the accounting firms appointed by the local SASAC and other relevant departments don’t know the operation principle of futures hedging. When they carry out annual financial audit on local state-owned enterprises, they either regard futures hedging as "gambling", or check the profit and loss of futures positions separately, rather than comprehensively estimate the profit and loss of spot positions due to price fluctuations, so as to accurately judge the enterprises gain and loss of business hedging operation. The result is that many local state-owned enterprises are unwilling to "cause trouble" and simply call off futures hedging business.

The reporter understands that this is one of the main reasons why many domestic enterprises and institutions are not enthusiastic to participate in futures hedging. Data shows that at present, there are more than 500000 enterprises above designated size in China, but only about 20000 participate in futures market hedging.

Therefore, there is also a big gap between China and the United States in terms of the real economy of futures service. Take cotton futures as an example. Last year, the position of domestic cotton futures was 1.223 million tons / year, only 16% compared with the domestic consumption of 7.769 million tons / year, while the position of American cotton futures was 4.80925 million tons / year, 741% compared with the consumption of 648830 tons / year. This means that a large number of upstream and downstream enterprises of American cotton industry chain locked the transaction cost and trade income through hedging to consolidate operating profit.

The head of the above-mentioned futures company disclosed to the reporter that the proportion of domestic industrial institutions participating in futures hedging is not high, which also leads to an unbalanced situation in the development of China’s futures market - for example, the volume of transactions in China’s commodity futures market is higher than that in the United States, but the volume of positions, value of positions and transactions is far lower than that in the United States.

A number of financial department directors of non-ferrous metal processing and manufacturing enterprises also pointed out to reporters that they could not participate in the futures hedging operation, so they could only adopt the traditional spot trade pricing mechanism to purchase raw materials, one is "benchmark price + floating price", the other is long-term contract agreement pricing.

"There are many problems in these two pricing mechanisms, which lead to high purchasing cost and operating pressure, and even frequent delivery default. "One of the executives told reporters that both of these pricing mechanisms may not accurately reflect the latest changes in supply and demand of raw materials for bulk commodities, leading to continuous contradictions in delivery. For example, when the price of bulk commodities rises sharply, downstream enterprises will "doubt" that upstream enterprises manipulate the benchmark price to "raise" the price of bulk commodities, and refuse to fulfill relevant trade agreements.

Fortunately, in recent years, China Securities Regulatory Commission has actively guided more and more enterprises and institutions to participate in hedging operations in the futures market, and promoted basis trade to gradually change the traditional spot trade mode.

The so-called basis transaction refers to the trade pricing mode in which the trading parties determine the price of goods by "futures price + basis". Because the futures market has the function of price discovery, the basis pricing on the one hand more accurately reflects the latest supply and demand changes of current commodities, on the other hand, enterprises can also carry out hedging through the futures market to avoid the risk of large fluctuation of the basis price.

"At present, the basis trading method has been well promoted in some domestic bulk commodity trading links." The person in charge of the above futures company pointed out to the reporter. In the domestic oil and fat industry, about 70% of soybean meal and palm oil, and about 40% of soybean oil spot transactions have adopted the basis trading mode. However, compared with CBOT and CME, which have already fully promoted the basis pricing trade in the field of agricultural products and non-ferrous metals, China is still "one beat behind".

The pace of futures opening to the outside world still needs to be speeded up

From the rapid development of domestic futures market to the promotion of pricing voice in the field of international trade of bulk commodities in China, there is also a certain lag effect.

Societe Generale used to selected 16 commodity futures varieties, and compared the price fluctuation similarity of the same variety and the same period in China and the Western futures exchanges, and finally came to three conclusions: first, in 192 monthly data, only 144 months, the price of the two futures are in the same direction; second, silver is the only variety with the same internal and external price direction, while corn, rapeseed and soybean oil had least link. Third, the monthly return (loss) rate of China’s commodity futures reached 32 times in a month with a monthly return (loss) rate of more than 10%, of which only 10 times kept pace with Western futures exchanges.

"This means that the linkage between China’s futures market and foreign market is weak. In other words, the influence of price fluctuation in China’s futures market on international commodity price fluctuation is not high. "Gordon Johnson, an analyst with axiom metals, a hedge fund, told reporters.

The reason is that the opening degree of China’s futures market to the outside world is limited, which makes the opening of domestic futures market to the outside world speed up obviously since this year.

Reporters have learned from many sides that after the introduction of crude oil, PTA, iron ore and No.20 rubber into foreign investors, relevant departments are planning to promote more qualified commodity futures and options to achieve "internationalization". For the international futures, each futures exchange needs to strengthen the promotion of the international market, improve the operation quality of the market and reduce the transaction cost. At present, Dalian Commodity Exchange and Zhengzhou Commodity Exchange are actively promoting the opening of palm oil, No.1 soybean, linear low-density polyethylene, polypropylene, methanol and other specific futures.

However, Gordon Johnson said frankly that despite the increasing openness, China’s unique risk control system may restrict the enthusiasm of overseas investment institutions to participate: first, China requires capital verification before opening positions for participants, and does not allow margin overdraft transactions, while American futures brokers can automatically set the upper limit of customer risk exposure and allow margin overdraft transactions; second, In terms of design of China’s position restriction system, all kinds of positions are limited, and the practice of combining the limit of member positions with the limit of customer positions is adopted. In general, the customer positions in the brokerage business of American futures companies are not combined with the limit of positions. As long as the limit of positions is for the net positions of customers, it is not for the overall positions. Thirdly, since this year, China has continued to implement penetration supervision, requiring customer identification and establishment of trading banks in order to analyze the system, American futures exchange allows customers to trade in a nominal account to "protect" their own trading strategy.

"In particular, the penetration supervision system makes some overseas investment institutions feel uncomfortable, so it slows down the pace of investment in the domestic futures market." He pointed out.

A senior executive of a domestic futures company who understands the trend of China’s futures supervision said that the main purpose of introducing the penetrating supervision system in the futures trading market by relevant departments is to effectively curb the phenomenon that individual institutions and individuals "manipulate" futures prices for profit by controlling a large number of related accounts. In addition, penetration supervision is not to "force" software into the trading system of overseas investment institutions, so as to retrieve their account (including related account) information, actual controller, account trading status and other data; overseas investment institutions can completely install relevant software in the trading system, and independently declare relevant account information in accordance with China’s relevant penetration supervision requirements.

"More and more overseas investment institutions have dispelled their concerns after learning that penetration regulation is not forced to withdraw all information and data of accounts." He revealed. Since the second half of the year, the pace of overseas investment institutions’ participation in domestic futures market investment has increased quietly. By the end of November this year, the number of accounts opened by overseas customers has reached about 5 times of the initial listing of crude oil futures, with the volume and position accounting for about 15% and 20% respectively. Recently, Vale of Brazil signed basis trade contracts with domestic institutions such as Shandong Laigang Yongfeng international trade Co., Ltd. based on the price of iron ore futures of DCE.

The above executives said frankly that it is not easy to attract large overseas commodity mining producers to participate in domestic futures hedging operations and basis trading - even in mature futures markets in Europe and the United States, they rarely participate in hedging operations or basis trading, because their mining production costs are low, and market price fluctuations are not likely to impact operating profits. Compared with the trade profits, they are more interested in the increase and decrease of market share. Even if the price of bulk commodities is low, they are willing to sell at a low price in exchange for a higher market share with a small profit. However, once they enter the domestic futures market to participate in hedging trading, they will transfer the influence of domestic commodity futures price fluctuation to the whole global industrial chain, thus enhancing China’s pricing voice in the field of international commodity trade.

"In addition to continuously promoting innovation and opening-up, domestic and foreign futures exchanges have carried out close cooperation, which is also an important way to promote international pricing discourse. These include interconnection with overseas exchanges, authorization of settlement price, introduction of derivatives with overseas commodity index as the target, and support of financial institutions to issue ETF products tracking price fluctuation of domestic commodity index or specific futures varieties overseas. "A domestic futures exchange official told reporters.

In addition, we need to support a number of powerful futures brokers and other intermediaries.

"In fact, one of the important reasons why the U.S. futures market is mature and has great pricing power for many commodities is that the investment bank securities institutions can not only provide matchmaking transactions, personalized design of hedging schemes, risk prevention education and training and other services to different participants in the industry chain, but also activate the trading flow of commodities and financial derivatives as a commodity market maker , firmly grasp the latest trend of supply-demand relationship in the market, give enterprises and financial institutions the most accurate and timely transaction quotation and hedging strategy, and help them to resolve all kinds of price fluctuation risks. But in China, the strength of intermediaries such as futures brokers is still relatively weak. "The head of a futures company said frankly.

(source: 21st century economic report)