On June 15, the Dalian Commodity Exchange issued a notice to implement a trading limit system for iron ore futures contracts.
Notice on Implementing Trading Limit Regulation on Iron Ore Futures Contracts
Our Ref: No. 230  DCE
June 15, 2020
Dalian Commodity Exchange
To all member entities and related market participants:
It is decided upon discussion that starting from the trading on June 16, 2020 (the night trading session on June 15, 2020), the combined trading volume of opening long and short positions on all the iron ore futures contracts of any Non-Futures Company Members or clients is not allowed to exceed 30,000 lots on every single day.
The hedging trading volume and market-making trading volume of opening positions shall be exempted. Accounts involving actual control relationship shall be managed as one single account.
DCE will dynamically adjust the trading limit in accordance with market conditions.
This notice is hereby released.
According to the notice, from the time of trading on June 16, 2020 (that is, during the night trading session on June 15), Non-Futures Company Members or clients is not allowed to exceed 30,000 lots on every single day. The single-day open volume refers to the sum of the number of open positions bought and sold on all futures contracts of iron ore varieties of Non-Futures Company Members or clients on the same day. At the same time, the hedging trading volume and market-making trading volume of opening positions shall be exempted. Accounts involving actual control relationship shall be managed as one single account.
It is understood that since this year, iron ore prices have fluctuated to a certain extent due to factors such as reduced shipments of foreign mines, the development of COVID-19 at home and abroad, strong domestic production demand, macroeconomic and financial policy adjustments. From the beginning of this year to June 12, the main iron ore futures contract settlement price rose by 16%. Due to the large amount of iron ore imports, under the situation of epidemic prevention and control, all parties have paid more attention to iron ore. However, analysts believe that, overall, the current iron ore futures market is operating steadily. As of June 12, this year's average daily iron ore futures transactions and daily holdings were 115.14 million lots and 930,800 lots respectively, The year-on-year growth was 0.46% and 12.86% respectively, and the turnover ratio remained at the level of 1.21, lower than the level of 1.36 in the same period last year.
In spite of this, in the context of epidemic prevention and control, the Dalian Commodity Exchange started from guarding against the occurrence of major financial risks and ensuring the overall development of the market. It effectively fulfilled its first-line supervisory responsibilities. On June 2, it issued a market risk reminder letter to remind its members to effectively strengthen investor education and risk prevention; afterwards, the person in charge of the Exchange Supervision Department responded to questions from media reporters, and once again expressed views on strengthening market supervision and ensuring stable market operation. The implementation of the trading quota system on the iron ore varieties of the big merchants this time is another measure to further maintain and consolidate the stable operation and development of the iron ore futures market.
Market analysts believe that the implementation of the trading limit system for iron ore futures have clarified the opening maximum number for Non-Futures Company Members or clients who open positions on the futures variety on the same day, It conducive to inhibiting a too-high opening of a single client's position or trading volume on the variety in a single day, and situations that may disturb intraday prices at some point. It will help to better maintain the market order.
According to the reporter of the Futures Daily, the trading limit system is one of the risk control measures adopted by international derivatives exchanges. Since 2016, domestic commodity futures exchanges have been implemented. Article 31 of the "Dalian Commodity Exchange Risk Management Measures" stipulates the trading limit system. The Exchange has implemented a trading limit system on black ore-based varieties such as iron ore. The system has played a positive role in preventing and mitigating market risks in advance.
In the night trading section on June 15, iron ore futures traded 343,700 lots, which was a decrease of 33.98% compared with the 520,600 lots in the night trading section on June 12 (last Friday).
According to the statistics of the Futures Daily reporter, from June 8 to June 12, iron ore futures trading in the night trading totaled 2,457,600 hands, and the average daily night trading was 491,500 hands. After the implementation of the iron ore futures trading limit system, the volume of the first night trading section fell by 30% compared with the average night trading volume on Sunday. The effect of the transaction limit system has initially appeared.
p.s. link to the notice: http://www.dce.com.cn/DCE/TradingClearing/Exchange%20Notice/6222237/index.html