Clearing and Risk Management of Bonded Copper Futures Trades 01
How are the daily settlement price and final settlement price of the bonded copper futures contract determined?
The daily settlement price of a bonded copper futures contract is the volume-weighted average price of all trades in that contract executed on a trading day. The final settlement price, which is the benchmark price for final settlement, is equal to the settlement price of the contract on the last trading day.
For special-case situations, please refer to Articles 34 and 35 of the INE Clearing Rules.
How to perform currency exchange while trading bonded copper futures?
Bonded copper futures are priced and settled in RMB. Overseas traders and overseas brokers may post margin in RMB or directly in USD, but USD-denominated margin can be used for clearing purposes only after it is exchanged into RMB.
For overseas traders and overseas brokers, the purchase and sale of RMB must be based on the actual results of their trades in bonded copper futures, and may only be performed for payments in connection with the trading of bonded copper futures, such as the settlement of profits and losses, payment of transaction fees, making or receiving of delivery payment, and deposit of additional cash funds for clearing purposes.
How are fund transfers handled for bonded copper futures trading?
Bonded copper futures are classified as a specified domestic product. According to PBOC’s Announcement  No. 19 and SAFE’s Circular Huifa  No. 35 and related Q&As, overseas investors and overseas brokers may transfer offshore RMB or USD to onshore bank accounts to trade bonded copper futures. These funds will be deposited in segregated accounts, protected from unauthorized operations while in China, and may not be used for any purpose other than the trading of specified domestic products. Fund transfers should comply with the scope of payments and receipts prescribed by relevant policies.
What is the margin system for bonded copper futures? How is it different from SHFE’s margin system for copper futures?
INE sets different trading margin requirements based on the particular stage a futures contract is in during its lifecycle (i.e., from listing to the last trading day). INE may also adjust the rate of trading margin based on market risk conditions through a public circular. The clearing deposit is managed in accordance with the INE Clearing Rules.
For risk management purposes, will the positions held by subsidiaries of the same parent company be managed separately or aggregated and managed on a net basis?
For risk management purposes, positions held by a group of clients, Non-FF Members, or OSNBPs that have actual control relationship with each other are aggregated in accordance with applicable rules. Accordingly, the total positions held by a client under multiple trading codes through different FF Members, OSBPs, and Overseas Intermediaries may not exceed the position limit set by INE, where, for the purpose of position limit, each trader’s positions are calculated on a single-counted basis (i.e., long only or short only) without netting. Additionally, Non-FF Members and OSNBPs are required to report accounts with actual control relationship to INE; while clients should do so with CFMMC. INE obtains information about these accounts from CFMMC, and aggregates and manages relevant positions accordingly.
What are INE’s rules for determining and approving the hedging quota for bonded copper futures?
Hedging with bonded copper futures requires prior approval from INE. If a trader believes that the regular position limit is too low to meet its hedging needs, it may apply to INE for a hedging quota. INE determines and approves such quotas based on two factors: the applicant’s bona fide production, trading, and consumption volume of physicals, and market conditions. An applicant should submit the necessary supporting materials, such as its production plan, sales contract, or processing plan.
When a futures contract enters the “nearby delivery months”, INE’s trading system will automatically adjust the hedging quota to the lower of the previously approved hedging quota for regular months and the general position limit for the contract in nearby delivery months. This adjustment converts the hedging quota for regular months to hedging quota for nearby delivery months, and is done to help manage market risks as the contract approaches the delivery month. However, if any trader finds the adjusted level is not sufficient to cover its hedging needs, it may separately apply to INE for a higher hedging quota for nearby delivery months.
The position limit for the delivery month is 700 lots (long only or short only). Can this limit be raised for enterprises in certain industries?
The 700-lot position limit only applies to general positions. Enterprises that are engaged in bona fide commerce trades or need to hedge against risks in the spot market may apply to INE for a hedging quota. The application should meet the requirements specified in the INE Trading Rules. For example, it should be accompanied by the corresponding spot trade contract, production plan, or other documentations recognized by INE, and be submitted before the relevant deadline. Once this application is approved, the applicant may hold positions beyond the 700-lot limit (long only or short only).