Date: November 15, 2012
Source: xinhua08.com

　　The newly-revised Futures Trading Management Regulation has been released to the public on November 5 and will take effect since December 1. It is another important measure in the construction of China’s futures market in the recent decade, which will not only contribute to the display of market’s functions but also leave room for the innovative business of futures market in the future. Therefore, it is expected to further promote the healthy development of futures market.
　　In the past ten years, the construction of China’s futures market has been improved day by day and its international competitiveness has also been gradually increased. The futures varieties have been enriched and the transaction volume has been continuously increased; both the quantity and the quality of investors have been enhanced; the system construction and the regulatory system of futures market have been continuously improved and its standardization level has been further enhanced; and the comprehensive level of futures companies have been further enhanced and domestic enterprises have effectively prevented price risks by using the futures market. All these have proved that futures market is playing a more and more important role in innovative development and in serving the real economy.
　　At present, China’s economic development is in the important stage of industrialization and faces huge demand for basic raw materials, sharp increase of international bulk commodity trade, and severe fluctuation of market prices. The real economy’s demand for risk management is becoming increasingly intense and urgent. All these require that China must rationally allocate resources in the global market and further compete for the international right of speech for bulk commodity prices.
　　As a result, China’s futures market should seize the opportunity of this important strategic period, accelerate the launch of a series of futures products that closely relate to national economy and people’s livelihood, and continue to enhance futures brokerage institution’s competitiveness. Efforts are needed to greatly enhance its regulatory and innovative level, further increase its pricing power and right of speech for bulk commodity, and strengthen futures market’s capacity to serve the real economy, so as to guarantee China’s transformation from an economic giant to an economic power.
　　I. Futures market construction has been improved and its international competitiveness has been greatly increased.
　　Having overcomed the non-standard development period with imperfect system and products, the new China’s futures market has successively experienced the rapid expansion period from 1990 to 1993 and the clean-up and rectification period from 1993 to 2000. Since 2002, it has stepped into the ten-year stable development period. During these ten years, futures market has achieved remarkable results in serving the real economy and optimizing the multi-level capital market system. Particularly, since the global financial crisis in 2008, China’s futures market has advanced against the market and achieved rapid development.
　　1. The number of trading products has been greatly increased and the varieties have been further enriched.
　　In the past ten years, after weeding out such minority products as small red beans and mung beans, China’s futures market has developed its listed products to 29 kinds in 2012 from 8 kinds in 2002. At present, the products have covered the major bulk raw materials, such as metals, energy and chemical raw materials, and agricultural and sideline products. In terms of the stock index futures, a financial futures product innovatively launched in 2010, its volume reaches 91.747 million contracts and its turnover RMB82.14 trillion, accounting for 26.6% of the total trading volume on the futures market.
　　In the past ten years, China has successively launched a series of important raw materials and industrial products concerning national economy and people’s livelihood, such as aluminum, zinc, steel, early indica rice, PVC, and deformed steel bar. These futures products are the important raw materials indispensible to China’s industrial and agricultural economic development. They have not only completed the spot market, but also completed the upstream-downstream industries chains. Active in market supply and demand, they are typical in the development of national economy, which has laid a solid foundation for futures market to serve the real economy and display its market function.
　　2. Trading scale continues to grow and trading volume exceeds RMB10 billion yuan for three consecutive years.
　　In the past ten years, China’s futures market has enjoyed continuous growth in its trading scale and achieved successive breakthroughs in its trading volume.
　　Having experienced the steady growth from 2002 to 2007, China’s futures market achieved the annual turnover of RMB71.91 trillion in 2008, up by 75.52% on a year-on-year basis, and the annual volume exceeded 1.3 billion contracts; the annual turnover of China’s futures market in 2009 broke the record of RMB100 trillion for the first time and reached RMB130.51 trillion, up by 81.48%; in 2010, the annual turnover achieved RMB309.12 trillion, up by 136.95% year-on-year; in 2011, despite the sharp decrease of international bulk commodity prices, China’s futures market still achieved the accumulative turnover of RMB137.51 trillion, down by 11% year-on-year; and in the first ten months of the year, the turnover had already reached RMB135 trillion, up by 18.84% year-on-year. And the scale of futures market has broken the critical point of RMB100 trillion for three consecutive years.
　　According to the latest statistics released by the Futures Industry Association (FIA) on 84 derivatives exchanges in the world, among the first 20 agricultural commodity futures and option contracts with largest trading volume in the first half of this year, the DCE soybean meal futures and the ZCE white sugar futures take up the first two positions respectively; the SHFE rubber futures takes up the fourth; the DCE soybean oil, corn, palm oil, and No. 1 soybean take up the 6th, the 7th, the 14th, and the 15th respectively. Among the top 20 metal futures and option contracts, the SHFE deformed steel bar and copper futures rank the first and the second respectively, the SHFE zinc futures takes up the 13th. The volume of the CSI 300 index futures of China Financial Futures Exchange (CFFEX) reaches 40.8861 million contracts, up by 85.8% year-on-year and ranking the 6th in the global stock index futures exchange.
　　3. Investor’s quantity and quality have been improved but its structure needs further optimizing.
　　With the development of the futures market, the number of investors in futures industry and the quality of people participating in futures trading have both been improved. However, compared with developed countries, the proportion of participants in China’s futures market is still very low.
　　On the whole, the low proportion of institutional investors now remains the major issue that prevents China’s futures market to further display its functions. Like the stock market, individual investors still take up the major proportion in the investor structure of China’s futures market. Statistics show that till the end of last year, the number of opened accounts in China’s futures market is about 1.3 million, among which the number of institutional investors is only 40,000, about 3% of the total. Professor of China Agricultural University Chang Qing said, “Private investors do not care the value of goods and only pay attention to the fluctuation of market prices. However, institutional investors attach more importance on exploring commodities’ middle and long-term value.” Therefore, it can be noticed that the participation of institutional investors can not only strengthen the market’s price-finding function, but also help promote market stability, thus further improving the international influence of China’s futures market.
　　According to incomplete statistics, right now at least 260,000 enterprises with certain scale have products related to China’s 26 commodity futures products. However, China’s futures market only has 40,000 corporate clients. Many enterprise entities have huge demand for risk management which has not been effectively satisfied.
　　To further increase the proportion of institutional investors, the China Securities Regulatory Commission (CSRC) and the China Futures Association (CFA) have strengthened their efforts on training institutional investors. In 2012, the regulatory level has lifted the control over other financial instructions’ access to futures market and all futures exchanges have also actively joined domestic futures companies to organize relevant training classes for institutional investors, so as to further increase the number of institutional investors in futures market and improve their quality.
　　4. System innovation has been gradually improved and the market has been gradually standardized.
　　In the past ten years, the system construction and the supervision system construction of China’s futures market have been continuously optimized and their standardized level has been further enhanced.
　　China’s futures market has learned and referred to the rules of foreign futures market and introduced such systems as bilateral trade, mark to market, margin system, and premium and discount system. Meanwhile, it has also designed a trading system with Chinese characteristics according to the features of China’s market and investors, such as computer matching system and price limit. It has established the futures market system with Chinese characteristics that focuses on serving the real economy, thus satisfying the demand of China’s enterprises and investors.
　　Marked by the release of the Opinions on Further Promoting the Reform and Development of Capital Market by the State Council on January 31, 2004, the system construction of futures market has been gradually improved and its overall operation has become more smooth and stable, in terms of both the market’s liquidity, the delivery system’s convenience and the scientificalness of the rules. On September 8, 2006, CFFEX was established in Shanghai, symbolizing China’s official release of financial derivatives futures business. Since the issue of the Futures Trading Management Regulations in 2007, China’s futures market has achieved more standardized and smoother development, which has laid a good foundation for the later rapid development of futures market.
　　At present, China’s futures market has set up a “five-in-one” regulatory system, including CSRC, the securities regulatory bureaus, the exchanges, China Futures Margin Monitoring Center Co., Ltd., and CFA. It has strengthened the market supervision under the principle of “unified leadership, shared resources, close cooperation, and joint regulation”, so as to protect the stable and efficient operation of China’s futures market.
　　5. Comprehensive strength of futures companies has been further improved.
　　Along with the various institutional innovations favoring the development of futures market, the comprehensive strength of futures companies has been further improved. Particularly, as securities companies have gradually involved in this field and organized a batch of large futures companies, they have played more important roles in leading the industry’s innovative development and in serving real economy.
　　By June 30, 2012, China had had 161 licensed futures companies. A total of 116 companies have the registered capital of over RMB100 million, among which 14 have the registered capital of RMB500 million or above. GF Futures, China International Futures, and Haitong Futures have the registered capital of over RMB1 billion. The net capital of futures companies amounts to RMB34.729 billion, up by 23.10% year-on-year and up 187% from RMB12.087 billion in 2008.
　　Up till now, four futures companies have obtained grade AA and 22 have got grade A. The number of companies with grade B has increased to 51.
　　In this October, China Insurance Regulatory Commission (CIRC) has successively released the Regulation on Insurance Funds’ Participating in Stock Index Futures Trading and the Interim Measures on Insurance Funds’ Participating in Financial Derivatives Trading. With the removal of restrictions on funds, trust, insurance, and other derivatives investing in futures, and with the expansion of futures companies’ operation scope, China’s futures companies will enjoy more relaxed operating environment in the future.
　　II. Effectively enhance the market competitiveness of domestic enterprises and practically display their functions of serving the real economy.
　　In the past ten years, China’s economic aggregates have risen to the 2nd in the world from the 6th. Particularly, after the financial crisis, China’s economy has maintained a steady growth despite the sluggish global economy, which has promoted China’s futures market to grow against the market. Meanwhile, with the continuous rasing of the positon of China’s futures market in the world, the gradual improvement of market function, and the promotion of stable and healthy economic operation, China’s futures market has played an important role in effectively enhancing the competitiveness of domestic enterprises and in serving the real economy such as safeguarding national energy security, food security, and financial security.
　　1. Effectively manage price risks, strive to compete for international pricing speech right, and help enterprises build brand advantage.
　　Hedging on the futures market can effectively transfer and manage the risks of price fluctuation, thus playing an irreplaceable role in facilitating the stability of enterprise’s operation. As Yang Maijun, General Manager of Shanghai Futures Exchange (SHFE) said, the motive power of the development of futures market is to meet the real economy’s demand of managing price risks.
　　Since the launch of corn futures by Dalian Commodity Exchange (DCE), the market has enjoyed a stable operation and its trading scale has been continuously increased, making corn futures prices an important basis for farmers and agricultural enterprises in such corn producing areas as northeastern China and north China to arrange for production, adjust planting structure, deciding marketing plan, and realizing expected profit. Many corn deep processing enterprises and feed companies have avoided price fluctuation risks and improved their operational conditions through participating in the hedging business on the corn futures market.
　　Having launched the copper futures contract, the SHFE has not only changed spot market’s pricing mode, but also provided effective instruments for enterprises to hedge price risks, thus significantly promoting the development of copper industry. At present, the copper futures contract is the most mature and the most widely-used product of China’s commodity futures and it is also the one that has first established the international price speech right in China.
　　After the global financial crisis in 2008, to support the “going-out” strategy implemented by Chinese enterprises, the futures market has, focusing on the stage development requirements of the real economy, seized the opportunity to carry out a series of supporting services such as introducing foreign enterprises to register their brands at SHFE and conducting pilot delivery of copper futures at bonded warehouses.
　　The brand registration strategy has greatly enhanced registered enterprises’ stress on product quality and promoted enterprises to improve product quality by strengthening internal management and continuously carrying out technical transformation. Right now, several brands of Chinese enterprises have been registered both at home and abroad. The “Guiye” brand and “Jiangtong” brand copper cathode of Jiangxi Copper Corporation is the grade A product registered both at SHFE and LME; the “Jiangtong” brand gold bullion has also been registered both at home and abroad; and the “Jiangtong” brand silver bullion is the registered product of London Bullion Market Association. The refined zinc of Shenzhen Zhongjin Lingnan Nonfemet Company Limited (NONFEMET) has been registered at both SHFE and LME and its electrolytic lead has been registered at LME. These exchanges’ registered brand products with high quality and good liquidity have built good brand advantage and financial advantage for the leading enterprises, and the good brands, as an important intangible asset, will further enhance enterprises’ financial quality and effectively increase their core competitiveness. Meanwhile, the international speech right of China’s non-ferrous metals futures market has been gradually improved and its influence on and interaction with the international market have become much stronger. Take the SHFE’s copper for example, from the previous “shadow price” of LME’s copper to today’s equal footing with the London copper, the SHFE’s non-ferrous metals prices have enjoyed increasingly strong influence in the world, thus laying a solid foundation for China to compete for its right of speech in the global market.
　　Statistics of SHFE show that from the launch of deformed steel bar futures on March 27, 2009, to the end of 2011, its accumulative volume reaches 469 million contracts with the turnover of RMB20 trillion. China’s deformed steel bar futures has become the world’s largest ferrous metal variety for three consecutive years. According to Yang Maijun, General Manager of SHFE, the correlation of deformed steel bar futures prices with the CRU international steel prices reaches 70%; and its correlation with the iron ore spot prices has risen to 90.8% in 2012 from 71.5% in 2009. The prices of deformed steel bar futures also synchronously reflect the change of PPI (Producer Price Index) and their correlation reaches 75%, making it an important index for researching the PPI.
2. Rationally allocate global resources to help enterprises implement the “going-out” strategy.
　　Since China’s government re-approved the overseas futures transaction business in 2001, 31 state-owned enterprises have obtained the qualification for engaging in overseas futures hedging business. In 2006, CSRC approved 6 futures companies to pilot in setting up branches in Hong Kong and allowed the establishment of bonded delivery warehouse at SHFE.
　　In the past ten years, the futures market has further promoted relevant entity industry to establish and improve the pricing mechanism of bulk commodities and facilitated the rational resources allocation of China’s metals, energy, and agriculture at home or even around the world. Besides, it has also enhanced the efficiency of resource allocation, adjusted and optimized the industrial structure, and promoted the industry transformation and upgrading, thus helping enterprises to use the markets and resources both at home and abroad and speeding up the implementation of the “going-out” strategy.
　　Zhuzhou Smelter Group usually signs a long-term concentrate purchasing contract of one or two years with international mineral suppliers and the supplying amount in the contract is usually partial shipment. The purchasing department has referred to the international mineral trading experience and put forward the concentrate valuation model of “futures basis price – basic spread (processing cost)”. That is to say, the price of imported refined lead and zinc contract will be decided according to the mineral recovery ratio and the LME price during the supplier’s pricing and then subtracting the processing cost. Its core idea is “sharing risks and profits”. Such a public and transparent pricing method can not only facilitate the reducing of negotiation cost but also greatly enhance the efficiency of resources allocation, thus enabling enterprises to obtain long-term and stable resources. Meanwhile, it is conducive to blocking the loopholes of material purchase and product sales and management as well as preventing moral risks.
　　In addition, domestic enterprises can take advantage of the futures market to strengthen their international negotiation ability and conduct overseas merger and acquisition. During the merger and acquisition and the mineral right trading in the international market, the futures prices are the important references and assessment basis in value assessment. In the past decade, more and more non-ferrous metals enterprises in China has utilized the futures mechanism to purchase or own foreign mines through overseas merger and acquisition, so as to obtain overseas resources and further optimize the global distribution of non-ferrous metals industrial resources.
　　Many examples can be found, such as China Aluminum Corporation’s acquisition of Peru’s aluminum ore, China Minmetals Corporation’s acquisition of OZMinerals (Australia’s third largest mining company), Western Mining’s acquisition of Australian FessAus, China Nonferrous Metal Mining Group’s acquisition of Zambia’s Luanshya Copper Mines, Australia’s Terramin Mines, and Kyrgyzstan’s Chaarat gold ore, NONFEMET’s acquisition of 50.1% equity of Australian PEM company, East China Mineral Exploration and Development Bureau’s acquisition of 50.1% equity of WTI company, Jilin Ji’en Nickel Industry Company’s acquisition of three nickel mines projects in Australia and one Ni-Co project of an Australian company.
　　Many examples can be found, such as China Aluminum Corporation’s acquisition of Peru’s aluminum ore, China Minmetals Corporation’s acquisition of OZMinerals (Australia’s third largest mining company), Western Mining’s acquisition of Australian FessAus, China Nonferrous Metal Mining Group’s acquisition of Zambia’s Luanshya Copper Mines, Australia’s Terramin Mines, and Kyrgyzstan’s Chaarat gold ore, NONFEMET’s acquisition of 50.1% equity of Australian PEM company, East China Mineral Exploration and Development Bureau’s acquisition of 50.1% equity of WTI company, Jilin Ji’en Nickel Industry Company’s acquisition of three nickel mines projects in Australia and one Ni-Co project of an Australian company.
In the above-mentioned acquisitions, Chinese enterprises have scientifically applied the futures market pricing mode to assess their acquisition targets and make use of futures hedging instrument to avoid risks, thus successfully conducting overseas acquisitions and achieving resources expansion.
　　III. Accelerate financial innovation and promote futures market construction to further enhance the capacity of serving the real economy.
　　At present, China’s economic development is under the important stage of industrialization, during which the demand for basic materials has been rapidly increased, the fluctuation of raw material prices has remained violent, and the enterprises’ demand for risk management has become increasingly intense and urgent. All these require us to rationally allocate resources in the global market and effectively compete for the international pricing speech right for bulk commodities.
　　This key strategic opportunity should be firmly seized to speed up financial innovation, promote futures market construction, and greatly enhance futures market’s ability to resist external risks and serve the real economy, so as to safeguard China’s transformation from an economic giant to an economic power.
　　1. Give full play to futures market’s function to escort national economy development.
　　China’s 12th 5-year plan outlines clearly that it is necessary to accelerate the construction of a multiple financial market system and promote the development of futures and financial derivatives market. From the steady development strategy put forward in the 10th 5-year plan to the current development promotion scheme, the achievement of the futures market development has been confirmed, with higher requirements coming up for the futures market at the strategically level. At present, China’s futures market is in the transformation from quantity expansion to quality improvement. Therefore, the futures market should fully display its advantages so as to make greater contribution to serving the real economy.
　　China’s dependence on foreign resources has become increasingly higher. However, with the continuous and rapid development of China’s economy, domestic enterprises’ “going-out” policy has encountered difficulties from almost everywhere. Therefore, from the perspective of the long-term protection of resources, China’s economic development is now facing two major problems – how to obtain resources and how to get resources at reasonable prices. To address these issues, the best way is to give full play to and make use of the futures market. We should fully display the functions of futures market and try our best to obtain resources.
　　First, we should obtain long-term and stable resources by enterprises’ scientific application of futures market’s price trend tools to conduct overseas merger and acquisition, which can not only meet the nation’s resources demand but also gain profits;
　　Second, we should increase the strategic reserve of the nation and the enterprises by utilizing futures market, so as to protect the economic security and strategic development of China;
　　Third, we should escort the healthy development of small and medium-sized enterprises. On the one hand, these enterprises can make use of futures market’s leverage effect to obtain needed raw materials with a small amount of money; on the other hand, they can also avoid price fluctuation risks through futures market to strengthen its capacity to resist market risks.
　　2. Strengthen futures market construction by enriching varieties, innovating intermediary business, and improving laws and regulations construction.
　　At present, the products on China’s futures market still need to be enriched, its intermediary business needs further innovating, and the construction of relevant laws and regulations needs further improving.
　　Though the products of China’s commodity futures have been increasingly enriched, a large number of bulk commodities still have not been set up as futures, thus unable to fully meet the demand of domestic economic development. Besides, the innovation of China’s financial derivatives is still at the initial stage. Particularly, China’s financial futures products are so limited that only the stock index futures are listed. Since the launch of stock index futures, its trading volume has taken up 50% of the total amount in the futures market, showing that the growth of financial futures is much stronger than commodity futures. In the global futures market, the trading volume of financial futures accounts for over 90% of the total. As a result, China’s financial futures market still has lots of room for innovative development.
　　The 12th 5-Year plan for financial development and reform released on September, 2012, suggests promoting the development of domestic commodity futures market and steadily launching new futures products to meet the market demand at the right time. It is learnt that the glass and crude oil futures have moved in the mock trading stage and several other futures such as iron ore and live hogs have also been included in the agenda for listing. In addition, China’s financial futures, such as treasury bond, foreign exchange, option, and carbon emission, have been under research, which are expected to be the new products to be listed.
　　The new Regulations on Futures Trading Management revised on November 5 will be implemented on December 1. However, the current situation of the legal system of China’s futures market, constituted by the Regulations on Futures Trading Management and a series of supporting management measures, still presents low level of effectiveness and lacks civil and criminal standards. The Futures Law should be launched to improve the current situation that there are no laws and regulations on futures.
　　Zhang Yujun, Assistant to Chairman of CSRC, said on November 7 that CSRC has been active in organizing prospective study and fundamental research on the legislation of futures law. By conducting assessment on the funcation display of futures products, it has initially established a function assessment system with 13 major items and 135 indexes. CSRC will continue to promote the reform and innovation of the futures market, further propel the rules improvement of the exchanges, strengthen futures company’s service function, and enhance futures company’s professional level of serving the entity industry, so as to continue to expand futures market’s breadth and depth of serving the real economy.
　　3. Build a “3-in-1” collaboration platform and promote the interactive development of the entity industry and the futures market.
　　Real economy industry associations, exchanges and futures associations should be encouraged to cooperate with each other, so as to build a “three-in-one” collaboration platform. The dialogue mechanism should be set up at a higher level, such as the formulation of industrial policy, the improvement of industrial concentration, and the assessment of corporation value, so as to enable enterprises to further understand, know about, and understand the operation rules of futures market, establish a perfect futures business management system, and standardize futures business operation. All these will help the spot enterprises to effectively make use of the futures market and make the development of China’s futures market based on the effective support to the real economy.
　　4. Continue to strengthen the business innovation capacity and the market competitiveness of futures companies and enhance their capacity to serve the real economy.
　　In terms of the internationalization degree, China’s futures market still has a long way to go, as it is not only restricted by the internal conditions but also restrained by the external environment.
　　Compared with America’s futures industry, China’s futures companies still have a long way to go. The concentration level of American futures industry is relatively higher. The margin and the adjustable net capital of the top 8 futures companies in the United States account for 70% and 60% of the total respectively, while that in China is always below 30%. Besides, the overall scale of China’s futures companies also lags behind the overseas mature market. For example, the scale of America’s futures margin is 6 times as large as that of China and its net capital of futures companies is 23 times as large as that of China. This is mostly due to China’s stricter regulatory policy. The business scope of domestic futures company is restricted in brokerage, settlement, and consulting business, while that of overseas futures companies includes various businesses, such as brokerage, settlement, consultation, asset management, funds, proprietary operation, OTC trading, financing, and cash business. As a result, the strength and competitiveness of futures companies should be reinforced by further expanding their business scope and encouraging business innovation and product development.
　　As the global economy has been slowing down and each country has strengthened their efforts in economic restructuring, China’s futures market should continue to enhance its business innovation capacity and accelerate its internationalization progress, so as to meet the demand of China’s economic development.
　　At first, vigorous policy support should be given to futures companies to encourage them to conduct business innovation. Besides, futures companies should rapidly expand their business outlets and the coverage of their product through merger and acquisition, and particularly, by purchasing overseas futures operational institutions and setting up outlets overseas, speed up the construction of a global trading network, thus lay a solid foundation for China to build itself into a pricing center of international bulk commodities and to compete for the right of speech for global bulk commodities.
　　In addition, domestic futures companies should also strengthen their innovation on technology, service and management by referring to the experience of overseas first-class futures companies. They should, by focusing on such intermediary business as futures brokerage, investment consultation, and asset management, and with warehouse warrant pledge, market making, and OTC business as the supplements, provide customers with high-quality and professional risk management services, so as to better display financial intermediary service companies’ functions of serving the real economy and safeguarding the national financial security. Meanwhile, qualified futures companies with great potential are encouraged to condect merger and acquisition, and financing through listing, thus providing futures companies with more development modes.