Notice on Piloting 2019 “Corporate Risk Management Plan”
Date:03 June 2019

June 3, 2019

Our Ref: No. 232 [2019] DCE

Dalian Commodity Exchange

To relevant entities:

To further encourage the futures market’s innovation in serving the real economy and expand the futures market’s width and depth of serving the risk management of industry enterprises, Dalian Commodity Exchange (DCE) decides to pilot the “Corporate Risk Management Plan” in 2019. The related matters are hereby announced as follows:

I. The principles of the pilot

1. By relying on the futures market, encouraging the pilot programs that make use of the futures to satisfy the actual risk management demand of industry enterprises.

2. By stressing the model demonstration effects, encouraging the pilot programs that serve the major leading enterprises in the key points of the industry chain.

3. Encouraging the pilot programs in which relevant financial institutions and industry enterprises can play a leading role basing on their own advantages.

4. Encouraging the pilot programs that help to comprehensively solve the actual problems of industry enterprises with the focus on integrated measures and policies.

5. By highlighting the function of exhange-traded market, encouraging the pilot programs that make full use of the exchanged-traded futures and options to conduct risk hedging.

6. By emphasizing the platform construction, encouraging the pilot programs that coordinate with the DCE General Service Platform.

II. Pilot Contents

The pilot programs of the “Corporate Risk Management Plan” mainly include three categories: the OTC (over-the-counter) options, the exchange-traded options promotion and the basis trading.

III. Requirements

1. Over-the-Counter Options Pilot

1) Applicants

Applicants are futures companies, securities companies, commercial banks, trading or non-trading industry enterprises that have been recorded for the OTC derivatives business, and should apply for the pilot program in the name of its headquarters, head office or controlling corporation.

Non-trading industry enterprises as the applicant should also be the service object of the pilot program and meet the requirements on the type and scale specified in Table 1.

Trading industry enterprises as the applicant should also be the service object of the pilot program and carry out options-included trading with upstream and downstream enterprises simultaneously. And, at least one of upstream and downstream enterprises meets the requirements on the type and scale specified in Table 1.

2) Service Objects

The service objects can be non-trading industry enterprises meeting the requirements on the type and scale specified in Table 1; or they can be trading industry enterprises that carry out options-included trading with upstream and downstream enterprises simultaneously, and at least one of upstream and downstream enterprises meets the requirements on the type and scale specified in Table 1.

The service objects for industrial products can be insurance companies, whose corresponding product service objects should be non-trading industry enterprises that meet the requirements on the type and scale specified in Table 1.

Each product of every non-trading industry enterprise can only take part in one OTC options pilot program, and it should take part in the DCE OTC options pilot program 3 times at most over the past few years.

3) Pilot Products

The pilot products are relevant futures products of DCE (see Table 1). When the program involves several products, there should be one main product.

4) Pilot Mode

The pilot mode adopts relevant futures products of DCE as the underlying and provides service objects with OTC options products and relevant services that meet their production and operation. Relevant financial institutions can make diversion of risks through exchange-traded futures, options or other effective ways recognized by DCE.

Service objects are not allowed to have net short option position in the pilot program.

5) Pilot Scale

The single OTC options of one pilot program should reach the minimum spot goods volume (see Table 1). When one pilot program involves several products, the main product should reach the minimum spot goods amount for the single OTC options.

Table 1: Spot Goods Amount of Single Options and Requirements on the Type & Scale of Service Enterprises for OTC Options Pilot

Pilot Product

Minimum Spot Goods Volume for Single OTC Options (Tonne)

Requirements on the Type & Scale of Pilot Service Enterprises

Type

Scale

Corn Starch

1,000

Deep-processing Enterprise

Annual Corn Consumption≥300,000 Tonne

500

Consumption Enterprise

Annual Corn Starch Consumption≥50,000 Tonne

No. 1 Soybean

1,000

Crushing Enterprise

Annual Soybean Processing Amount≥50,000 Tonne

No. 2 Soybean

1,000

Crushing Enterprise

Annual Soybean Processing Amount≥1,000,000 Tonne

Soybean Oil

1,000

Crushing Enterprise

Annual Soybean Oil Output≥200,000 Tonne

RBD Palm Olein

1,000

Refining Enterprise

Annual RBD Palm Olein Output≥600,000 Tonne

Egg

200

Breeding Enterprise

Average Daily Breeding Stock of Eggs≥1,000,000

200

Consumption Enterprise

Annual Egg Consumption≥6,000 Tonne

Metallurgical Coke

5,000

Coking Enterprise

Annual Metallurgical Coke Output≥1,500,000 Tonne

5,000

Iron & Steel Enterprise

Annual Crude Steel Output≥3,500,000 Tonne

Coking Coal

5,000

Coal Enterprise

Annual Output of Metallurgical Coal Concentrate≥2,000,000 Tonne

5,000

Coking Enterprise

Annual Metallurgical Coke Output≥2,000,000 Tonne

5,000

Iron & Steel Enterprise

Annual Crude Steel Output≥3,500,000 Tonne

Iron Ore

10,000

State-owned Mine Enterprise

Annual Ore Concentrate Output≥3,000,000 Tonne

10,000

Iron & Steel Enterprise

Annual Crude Steel Output≥3,500,000 Tonne

PVC

200

Upstream Producing Enterprise

Annual PVC Output≥250,000 Tonne

100

Downstream Processing Enterprise

Annual PVC Consumption≥50,000 Tonne

LLDPE

200

Upstream Producing Enterprise

Annual PE Output≥100,000 Tonne

100

Downstream Processing Enterprise

Annual PE Consumption≥20,000 Tonne

PP

200

Upstream Producing Enterprise

Annual PP Output≥100,000 Tonne

100

Downstream Processing Enterprise

Annual PP Consumption≥60,000 Tonne

Ethylene Glycol

200

Upstream Producing Enterprise

Annual Ethylene Glycol Output≥100,000 Tonne

100

Downstream Processing Enterprise

Annual Ethylene Glycol Consumption≥200,000 Tonne

2. Exchanged-traded Options Promotion Pilot

1) Applicants

The applicants are future companies and should apply in the name of the headquarters.

2) Service Objects

The service objects should be non-trading or trading industry enterprises corresponding to relevant product and have traded this product.

One industry enterprise can only take part in one exchange-traded options promotion pilot program.

3) Pilot Mode

The pilot mode is that the futures companies cultivate industry enterprises to manage risks in production and operation by directly making use of exchange-traded options, including risks related to spot goods and the underlying futures, thus enhancing the overall risk management effects.

4) Pilot Products

The pilot products are soybean meal options and corn options of DCE.

5) Pilot Requirements

The options trading strategy of the pilot program should serve the actual risk management demand of enterprises in their production and operation. During the pilot program for the industry enterprise, the days of the open interests of pilot options products for risk management exceeding 2,000 contracts should be no less than 20 trading days.

Futures companies should make a comprehensive summary on the risk management demand, options trading strategy, the profit and loss of the open interests of futures, spot goods and options of the company, and the options functioning, forming an integrated case of industry enterprises managing risks with exchange-traded options.

3. Basis Trading Pilot

1) Applicants

The applicants are futures companies or one party engaging in basis trading.

Futures companies should apply in the name of the headquarters.

The one party engaging in basis trading can apply directly but should have a futures company to offer relevant services as a participant.

2) Service Objects

The service objects are two parties engaging in the basis trading.

The pilot requires that at least one party meets the requirements on non-trading industry enterprise specified in Table 2.

Each product of one non-trading industry enterprise can only take part in one basis trading pilot program, and one pilot program can only apply for one of the three pilots (the OTC options pilot, the exchange-traded options promotion pilot and the basis trading pilot).

3) Pilot Products

The pilot products include iron ore, coking coal, metallurgical coke, PVC, LLDPE, PP, ethylene glycol, corn and corn starch.

4) Pilot Mode

The pilot mode is that the two parties sign the basis trading contract, price through “futures price + basis”, and have corresponding risk management behaviors in the futures market. The interval between the time of singing the basis trading contract and that of pricing should be at least 5 workdays in principle.

5) Pilot Scale

The maximum pilot number of each pilot product and the minimum spot goods amount for each pilot program in principle are specified in Table 2.

Table 2: Minimum Spot Goods Amount and Requirements on Participants in Basis Trading Pilot

Pilot Product

Pilot Number (Maximum)

Minimum Spot Goods Volume of Each Pilot Program (Tonne)

Requirements on the Type & Scale of Participants

Susidy Standard (RMB/Tonne)

Good

Excellent

Iron Ore

20

10,000

At least one party is an iron & steel enterprise with the crude steel output of at least 3,500,000 tonne in 2018;

Or a mine enterprise with the iron ore concentrate output of at least 3,000,000 tonne in 2018

10

13

Coking Coal

5,000

At least one party is an iron & steel enterprise with the crude steel output of at least 3,500,000 tonne in 2018;

Or a coal enterprise with the output of metallurgical coal concentrate of at least 2,000,000 tonne in 2018;

Or a coking enterprise with the coke output of at least 1,500,000 tonne in 2018

20

26

Metallurgical Coke

5,000

At least one party is an iron & steel enterprise with the crude steel output of at least 3,500,000 tonne in 2018;

Or a coking enterprise with the coke output of at least 1,500,000 tonne in 2018

30

39

PVC

10

500

At least one party is a upstream producing enterprise with the PVC output of at least 250,000 tonne in 2018;

Or a downstream consumption enterprise with the PVC consumption of at least 50,000 tonne in 2018

60

78

LLDPE

500

At least one party is a upstream producing enterprise with the PE output of at least 100,000 tonne in 2018;

Or a downstream consumption enterprise with the PE consumption of at least 20,000 tonne in 2018

60

78

PP

500

At least one party is a upstream producing enterprise with the PP output of at least 100,000 tonne in 2018;

Or a downstream consumption enterprise with the PP consumption of at least 60,000 tonne in 2018

60

78

Ethylene Glycol,

500

At least one party is a upstream producing enterprise with the Ethylene Glycol output of at least 100,000 tonne in 2018;

Or a downstream consumption enterprise with the Ethylene Glycol consumption of at least 200,000 tonne in 2018

60

78

Corn

10

10000

At least one party is a downstream consumption enterprise with the corn consumption of at least 1,000,000 tonne in 2018;

15

19.5

Corn Starch

5000

At least one party is a corn starch producing enterprise with the corn starch output of at least 500,000 tonne in 2018;

Or a downstream consumption enterprise with the corn starch consumption of at least 200,000 tonne in 2018

15

19.5

IV. Pilot Procedures

The 2019 “Corporate Risk Management Plan” adopts the process of “recording in advance, in-process tracking and aftermath review”.

1. Recording in Advance

1) Application for Recording

The applicants can apply for the recording of the OTC options pilot and the basis trading pilot from the issuance of this notice to October 31, 2019, and can apply for the recording of the exchange-traded options promotion pilot from the issuance of this notice to July 31, 2019.

The applicant can submit a written application for delay caused by objective reasons.

(1) OTC Options Pilot

The applicants can only apply for the recording of 3 pilot programs at most and the products and service objects involved cannot be the same.

The applicants should submit the “Record Form for the OTC Options Pilot Program of 2019 ‘Corporate Risk Management Plan’ of Dalian Commodity Exchange” and the “Project Plan for the OTC Options Pilot Program of 2019 ‘Corporate Risk Management Plan’ of Dalian Commodity Exchange” (Attachment 1, 2) with the official seal of the applying entity and the signature by the chief of the company’s headquarters.

The applicants should submit the copy of the master agreement, supplemental agreement and performance guarantee agreement of the OTC derivatives products and the confirmation of at least one OTC options trading for the pilot program. (The insurance document is needed when insurance product is involved.)

(2) Exchange-traded Options Promotion Pilot

The applicants can only apply for one pilot program of each exchange-traded options product.

The applicants should submit the “Record Form for the Exchange-traded Options Promotion Pilot Program of 2019 ‘Corporate Risk Management Plan’ of Dalian Commodity Exchange” and the “Project Plan for the Exchange-traded Options Promotion Pilot Program of 2019 ‘Corporate Risk Management Plan’ of Dalian Commodity Exchange” (Attachment 4, 5) with the official seal of the applying entity and the signature by the chief of the company’s headquarters, as well as the “Confirmation Letter of Participating in the Exchange-traded Options Promotion Pilot Program of 2019 ‘Corporate Risk Management Plan’ of Dalian Commodity Exchange” (Attachment 6) with the official seal of the industry enterprise and the signature by relevant chief.

(3) Basis Trading Pilot

The applicants should submit the “Record Form for the Basis Trading Pilot Program of 2019 ‘Corporate Risk Management Plan’ of Dalian Commodity Exchange” and the “Project Plan for the Basis Trading Pilot Program of 2019 ‘Corporate Risk Management Plan’ of Dalian Commodity Exchange” (Attachments 7 and 8) with the official seal of the applying entity and the signature by the chief of the company’s headquarters.

The applicant should submit the basis trading contract and its copy, as well as relevant documents.

2) Recording Confirmation

DCE will review the recording documents and send the “Letter of Confirmation for Recording” to qualified applicants as a message for successful recording. The exchange-traded options promotion pilot program shall come into force as of the date of successful recording.

2. In-process Tracking

During the operation of the successfully-recorded OTC options pilot programs and basis trading pilot programs, the applicants should submit the “Progress of OTC Options Pilot Program of 2019 ‘Corporate Risk Management Plan’ of Dalian Commodity Exchange” and the “Progress of the Basis Trading Pilot Program of 2019 ‘Corporate Risk Management Plan’ of Dalian Commodity Exchange” (Attachments 3 and 9) to DCE every half a month (the 15th day and the 30th day of every month).

DCE will track the progresses in the successfully-recorded exchange-traded options promotion pilot programs by visiting industry enterprises or organizing discussions.

DCE will inquire about the progresses in successfully-recorded programs irregularly, and it is entitled to cancel any pilot program that do not submit required documents or accept the inquiry.

3. Aftermath Review

1) Application for Program Closure

The successfully-recorded and completed OTC options pilot programs and basis trading pilot programs should apply to DCE for program closure before December 15, 2019.

The successfully-recorded and completed exchange-traded options promotion pilot programs should apply to DCE for program closure before December 1, 2019.

2) Program Closure for Review

DCE will issue the notice on program disclosure for review to qualified applicants after reviewing the application documents submitted for program closure, and organize the meeting on program closure for review. And it will determine the objects and amounts of the granted funds according to the review results. DCE will issue the guidance on program closure for review to the applicants before the review.

3) Funds

DCE will pay corresponding funds to the applicants according to the results of the program closure for review.

V. Pilot Funds

Table 3: Funds Payment Scheme for the “Corporate Risk Management Plan” Pilot Programs

Pilot

Mode of Payment

Rank

Standards

Payment Standards (Single)

Payment Limit (Single)

Number of Payment

OTC Options Pilot

According to the actual premium amount

Excellent

Pilot programs rated 80 scores and above and ranking top 10 in the review meeting

80% of the premium

RMB 500,000

20

Good

Pilot programs rated 60 scores and above and ranking top 20 in the review meeting (not in the “Excellent” rank)

50% of the premium

Exchange-traded Options Promotion Pilot

Fixed amount

Included

Pilot programs with every options product rated 60 scores and above and ranking top 10 in the review meeting

RMB 300,000 (Soybean Meal); RMB

200,000 (Corn)

——

10 for Soybean Meal; 10 for Corn

Basis Trading Pilot

According to the spot goods volume

Excellent

Pilot programs ranking in the top 30% of the ferrous, chemical and agricultural sectors in the review meeting

see Table 2

RMB 1 million for Iron Ore; RMB 500,000 for other pilot products

40

Good

Pilot programs ranking top 20, 10 and 10 respectively in the ferrous, chemical and agricultural sectors in the review meeting (not in the “Excellent” rank)

see Table 2

DCE shall reserve the right of final interpretation to this notice. For the financial institutions that intend to take part in, please advance relevant work as required in this notice in strict accordance to the time schedule, otherwise DCE will refuse to handle.

Contact Person: Jiang Qi, Wang Yuning

Tel.: 0411-84808381; 18040103608

0411-84808307, 15840604263

E-mail: otcoption@dce.com.cn (for OTC Options Pilot)

option@dce.com.cn (for Exchange-traded Options Promotion Pilot)

basistrading@dce.com.cn (for Basis Trading Pilot)

Attachments:

1. Record Form for the OTC Options Pilot Program of 2019 “Corporate Risk Management Plan” of Dalian Commodity Exchange”

2. Project Plan for the OTC Options Pilot Program of “Corporate Risk Management Plan” of Dalian Commodity Exchange”

3. Progress of the OTC Options Pilot Program of 2019 “Corporate Risk Management Plan” of Dalian Commodity Exchange”

4. Record Form for the Exchange-traded Options Promotion Pilot Program of 2019 “Corporate Risk Management Plan” of Dalian Commodity Exchange

5. Project Plan for the Exchange-traded Options Promotion Pilot Program of “Corporate Risk Management Plan” of Dalian Commodity Exchange

6. Confirmation Letter of Participating in the Exchange-traded Options Promotion Pilot Program of 2019 “Corporate Risk Management Plan” of Dalian Commodity Exchange

7. Record Form for the Basis Trading Pilot Program of 2019 “Corporate Risk Management Plan” of Dalian Commodity Exchange.doc

8. Planning PaperProject Plan for the Basis Trading Pilot Program of “Corporate Risk Management Plan” of Dalian Commodity Exchange.doc

9. Progress of the Basis Trading Pilot Program of 2019 “Corporate Risk Management Plan” of Dalian Commodity Exchange”.doc

Disclaimer: This English translation may be used for reference only. In cases there is any discrepancy between the English version and the original Chinese version, the original Chinese version shall prevail. Dalian Commodity Exchange may change or update this English translation without any prior notice and shall accept no responsibility or liability for damage or loss caused by any error, inaccuracy, misunderstanding, or change with regard to this English translation.

Address : No.129 Huizhan Road, Dalian 116023, China
Tel : 86-411-84808888 Fax : 86-411-84808588
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