Mr Li takes us through the drivers behind DCE’s recent growth, and discusses his vision for the future.
WFE: Please give us an overview of Dalian Commodity Exchange and its operations.
Founded in 1993, Dalian Commodity Exchange (DCE) is one of the four Chinese futures exchanges under the supervision of the China Securities Regulatory Commission (CSRC). The 16 futures products launched by DCE cover multiple industrial areas, including oil and oil seeds, feed and farming, synthetic resin, coal, coke and minerals. With 23 years’ regulated operation and steady development, DCE has become the world's largest futures market for edible oil, plastics, coal, and iron ore, and the second largest futures market for agricultural products. In 2015, DCE traded 1.12 billion contracts, ranking 8th among major derivatives exchanges worldwide, according to FIA statistics.
WFE: Commodity derivatives volumes in 2015 exceeded 4.3 billion contracts traded globally, an increase of 26% vs 2014, with DCE accounting for 26% of these volumes. What do you think is driving this growth?
The driving factors for the rapid growth include strong demand for commodity derivatives caused by China’s economic transition and upgrading, and the endogenous dynamics characteristic of China. This is a result of the effective philosophy and methodologies concerning market regulation.
First, business entities have increasing demand for risk management under China’s ‘new normal’. For example, participants in DCE’s oil and oilseeds market include more than 80% of the leading enterprises in China’s upstream and downstream oil and oilseeds industries. Participating in the trading of RBD palm oil in 2015 were about 4,600 corporate clients, up by 29% from a year earlier.
Second, China’s market-oriented reform has unleashed important opportunities for futures markets. Take corn for example; this year, the Chinese government adjusted the temporary purchase and storage policy that had been implemented for eight years to a new mechanism featuring more market pricing. From January to August this year, trading volume of DCE corn futures increased 5.1 times, with average daily open interests increasing by 2.6 times from a year earlier.
In 2015, DCE traded 1.12 billion contracts
Third, the steady operation and functioning of the market owes a great deal to the endogenous dynamics that are Chinese characteristics. China’s commodity futures market learns from its experience of Western markets, and at the same time, it sticks to the realities in China.
Chinese regulators assert that the bottom line of the futures market is to serve the real economy. China has a series of rigorous standards and procedures for the research & development (R&D) and launch of commodity futures. Trading volume is not their only concern; indeed, Chinese exchanges adjust contract rules according to industry development and encourage companies to hedge.
Chinese exchanges are also keen on training industrial companies and futures professionals, and building a strong futures ecosystem together with banks, insurance companies, funds and other financial institutions. Composed of the CSRC, CSRC agencies, exchanges, China Futures Market Monitoring Center (CFMMC) and futures association, the futures regulatory framework in China is under a unified leadership, with involved parties sharing resources and implementing coordinated regulation. For example, in a bid to protect client's funds, account opening and futures margins monitoring are exclusively handled by CFMMC. Exchanges closely track and analyse market developments by implementing a risk management mechanism comprising a large position report, real time margin monitoring, position limit, forced position reduction and liquidation, so as to effectively prevent various threats to the market.
WFE: DCE has been a member of the WFE since 2012, and has regularly attended the WFE General Assembly & Annual Meeting. Why is this such an important date in your calendar?
The WFE General Assembly & Annual Meeting is attended by senior officials of major exchanges worldwide, featuring workshops and speeches themed around hot global issues. The meeting has become an important channel for DCE to interact with international counterparts and discuss the latest developments, reforms and innovation in the global derivatives markets.
I am honoured to deliver a speech on a panel at this year’s annual meeting, where I will give a briefing on the current developments and trends in China’s commodity futures market, and compare notes with our international counterparts. We hope to use this meeting as a platform to show the world more about China’s derivatives market, and share our development opportunities with global investors.
WFE: Looking to the future, what’s your vision for the exchange and its business?
DCE’s vision is to become a world-class derivatives exchange; namely, an important world centre for pricing and risk management, with first-class personnel, management, technologies and services, well developed infrastructure, complete market system, safe and efficient operations, and effective functioning.
To achieve this long-term goal, we will steadily speed up the strategic shift to a diversified, open and comprehensive derivatives exchange by focusing on the launch of agricultural options, internationalisation of iron ore futures, and the development of the OTC market.
To prevent and resolve market risks, DCE will steadily push forward with the following major initiatives: adapting to the ’new normal’ of China’s economy; seizing the strategic opportunity of ’One Belt, One Road’; sticking to the purpose of serving the real economy; steadily advancing the launch of commodity options and strategic futures products; developing new instruments; propelling the internationalisation of participants and exploring international delivery sites through pilot programmes on iron ore, palm oil and other products; developing OTC market to enrich market tiers; continuing to improve contract rules; and encouraging industrial clients and institutions to participate in trading.