Published On: Mon, Mar 12th, 2012

DCE: Supporting Domestic Spot Enterprises to Use Foreign Commodity Futures Markets to Manage Risks

Liu Xingqiang DCE President

Liu Xingqiang DCE President

In recent years, the world’s economic integration process continues to accelerate, China’s reform and opening up has further deepened and international trade is continuously expanding. Affected simultaneously by instability and uncertainty of the global macroeconomics and changes of commodity demand and supply, international commodities are traded at high prices. Since pricing of commodities in international trade is still largely based on overseas commodity futures prices as benchmarks, the domestic spot companies urgently need to use both domestic and overseas futures markets to carry out relevant hedging operations to avoid market risks, in the meantime, they also increasingly rely on domestic futures companies to provide professional, secure and convenient intermediary services.

At present, besides a handful of large state-owned enterprises approved and allowed by the State Council and relevant departments to engage in overseas commodity futures business, the vast majority of domestic spot enterprises lack legal channels to access the overseas futures markets in hedging and risk management. Many of domestic spot companies can only seek means in the domestic markets to disperse risks of commodity price fluctuations in international trade, reducing their efficiency of hedging and pricing flexibility in trade , which not only renders the domestic enterprises in a more disadvantageous position in international trade and market competition and severely hampers the improvement of the enterprise’s core competitiveness and risk-aversion ability, but also is not conducive to China’s enterprises to seize the initiative in the international commodity price formation mechanism and to enhance our ability in international pricing for commodities.

To this end, we propose, under the direct leadership of the CSRC, with active cooperation from the Foreign Exchange Bureau, the SASAC and the Ministry of Commerce and other related departments, in accordance with the relevant provisions of Administrative Regulations on Futures Trading, to speed up the preparatory work on pilot trading of overseas futures by domestic enterprises and to draft as soon as possible the Administrative Measures of Trading Overseas Futures by Domestic Enterprises. At the same we also propose: the Foreign Exchange Bureau to initiate as soon as possible supportive regulatory policies on foreign exchanges; the SASAC to introduce as soon as possible supportive regulatory rules on central state enterprises to engage in trading overseas futures, and in coordination with local SASAC, to do overall planning of the means of participation and relevant regulatory rules for local state-owned enterprises; the Ministry of Commerce to debut as soon as possible supportive approval rules on allowable overseas futures products the domestic spot enterprises can trade.

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