Date: February 10, 2014
Source: China Economic Weekly

　　Futures practitioners experienced quite a fruitful year in 2013 with innovations observed on and on in the industry highlighting considerable listings of new products, launch of night trading or after-hours trading, opening-up of assets management business, and introduction of businesses of risk management subsidiaries.
　　The number of domestic futures products increased to 40 thanks to the 9 new futures products launched in 2013 which made up of 8 commodity futures including coking coal, steam coal and petroleum asphalt as well as treasury bond futures. The year 2013 witnessed the most new products in the futures industry since its rectification closure in the 1990s.
　　Domestic futures companies in 2013 were well rewarded as 10 futures companies seized net profit exceeding RMB100 million, including the newly enrolled Haitong Futures and Guoxin Futures along with the “2012 Billionaire Club” group of Yong’an Futures, CITIC Futures, China International Futures, Guotai Junan Futures, GF Futures, Galaxy futures, COFCO Futures and Huatai Great Wall Futures.
　　With the deepening reform of the futures industry, what are the new highlights await us in 2014?
　　The Beginning Year of Options
　　At the end of 2013, futures exchanges one after another launched market-wide mock trading of options including the CSI 300 stock index options of the China Financial Futures Exchange (CFFEX), the individual stock options of the Shanghai Futures Exchange (SHFE), the white sugar futures options of the Zhengzhou Commodity Exchange (ZCE), the soybean meal futures options of the Dalian Commodity Exchange (DCE) and the copper and gold futures options of the Shanghai Futures Exchange (SHFE). All these products are expected to be launched in succession in the first half of 2014 according to an industry insider.
　　Hu Yuyue, Director of Securities and Futures Institute of Beijing Technology and Business University (BTBU) was quoted as saying that as a major institutional innovation, options trading will change the ecology of Chinese futures markets given that options are a very flexible and sophisticated risk management instrument as well as a wealth management instrument.
　　Zhu Bin, Director of Nanhua Futures Research Institute told China Economic Weekly that the launch of options will bring about revolutionary changes in the futures industry as options have irreplaceable advantages in enterprise risk management as a hedging instrument for corporate customers to participate in the futures derivatives market.
　　The liquidity of option market counts much for the smooth options trading. Therefore, Hu Yuyue calls for implementing market maker system in the stock index options and commodity options to improve liquidity. Brokers and fund companies can play the role of primary market makers in stock index options trading, while large-scale trade enterprises can play the role of market makers in commodity options trading.
　　Crude Oil Futures Expected to be Launched in April
　　On November 22, 2013, the Shanghai International Energy Trading Center was established in the Shanghai Futures Exchange (SHFE), symbolizing a key step forward for launching crude oil futures. Jiang Yang, Vice Chairman of the China Securities Regulatory Commission (CSRC) said that the Shanghai International Energy Trading Center, the organizer of crude oil futures market as a national strategy, should well conduct all preparatory work involved in the launch of crude oil futures to ensure its smooth launch in line with the principle of “internationalization, marketization, legalization and professionalization”.
　　Recently there have been reports speculating that the crude oil futures will be launched around April of this year.
　　If the numerous new products in 2013 are “quantitative” changes to boost China’s futures market, then the launch of crude oil futures will serve as a booster to “qualitative” leap-forward of the market. Crude oil, the “blood” of global industries, takes an absolute leading position in global commodity market. The launch of crude oil will perfect the entire series of commodities futures.
　　Wang Ke, Managing Director of the China International Futures speculated that the launch of crude oil futures, as a relatively larger product, might take the mixed pricing manner of dollar and RMB-denominated, which will be a great innovation for China.
　　Besides, Hu Yuyue also said that the crude oil futures would be launched in Shanghai International Energy Trading Center, adopting the brand new trading patterns of international auction trading platform and bonded delivery.
　　Futures Companies Compete to Establish Risk Management Subsidiaries
　　For over two decades, Chinese futures companies are only available to brokerage business with severe homogeneity operation. The innovative services launched in two years including asset management services and risk management services have provided opportunities for the diversified development of the futures companies.
　　Wang Huadong, General Manager of Hongyuan Futures, said that futures assets management has been the uttermost innovative business since 2013, through which futures companies can highlight futures and options to provide diversified wealth management products for investors.
　　Although risk management subsidiary business of the futures companies has still been in its infancy as it just started its journey in 2013 with only a few businesses put into operation. The business will usher in tremendous development this year.
　　A risk management subsidiary is established by a futures company holding 50% shares of it, with main businesses of warehouse warrant service, cooperative hedging, pricing service, basis trading and other risk management services. This will help futures companies to step into the spot market, taking advantages of futures and spot markets to reap profits.
　　According to Zhu Bin, Nanhua Futures established its first risk management subsidiary in September 2013 and began to steadily push forward the risk management business in early 2014.
　　“Compared with the futures assets management business, the risk management subsidiary business is more promising, as in the perspective of asset management business, futures assets management businesses are in competitive relationship with banks, funds, securities companies and other asset management businesses. On the contrary, there is no overlap between the new risk management subsidiary business and business from other financial institutions,” said Zhu Bin.
　　Risk management subsidiary business theoretically has a large room for development. It can either be combined with the OTC market for OTC derivatives business, or with enterprises for providing individualized risk management programs, or with financial institutions to provide them with personalized financial products.
　　Treasury Bond Futures Will See Ever-increasing Activeness
　　In 2014, the treasury bond futures will embrace ever-increasing activeness with the participations from institutional investors. Since its launch in September 6, 2013, treasury bond futures has seen less active trading compared with other commodities futures and stock index futures. According to the 2013 Futures Market Data released by the China Futures Association (CFA), the monthly volume of treasury bond futures has traded tens of thousands of contracts, while that of the stock index futures has traded more than 10 million contracts.
　　Futures practitioners generally believe that the treasury bond futures’ inactiveness owes much to that the financial institutions spotlighting commercial banks and insurance companies have failed to substantively step their foot in treasury bond futures market, in addition to various factors including high demand of professionalism, high threshold and unpredictable ups-and-downs of the treasury bond market.
　　At the beginning of 2014, the promotion work for financial institutions, such as commercial banks and insurance companies, to access to the treasury bond futures market is well under way. Chen Han, Deputy General Manager of the China Financial Futures Exchange (CFFEX) said that the CFFEX would further develop the treasury bond futures to flourish diversities of investors’ structures in the treasury bond futures market under the leadership of the CSRC. Its specific work involves supporting market access policies for financial institutions including commercial banks and insurance companies, lower transaction costs, and launch other futures of treasury bonds with various maturities.
　　Commercial banks and insurance companies, the main participants in the treasury bonds spot market in China, hold and trade an impressive proportion of treasury bonds. With the continuous advancement of China’s interest rate marketization, commercial banks and insurance companies holding a large amount of treasury bonds are in the face of considerably greater risks of fluctuations in interest rates. In this case, the treasury bond futures are designed as hedging instruments for these financial institutions.
　　In 2014, financial institutions will set their feet in treasury bond futures market one after another under the propelling of regulators. A desirable activeness in treasury bond futures market is expected to be observed.