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Control on commodities exchanges
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CHINA is extending its control of onshore markets to commodities exchanges, spooked by signs that speculators have shifted from China’s volatile stock markets to commodities futures.
The country’s top commodities exchanges — the Dalian Commodity Exchange, Shanghai Futures Exchange and Zhengzhou Commodity Exchange — were asked recently by China’s exchange regulator to draft rules designed to “regulate the behavior of program trading” in futures markets, according to people familiar with the matter.
The move comes on the back of a slew of new regulations aimed at curbing what Chinese authorities call “malicious” trading in stock futures, blamed in part for stoking the turmoil that saw stocks slide over 40 percent since June.
That prompted hedge funds and other investors to steer their order flow into commodities, which had previously not been impacted by China’s regulatory overhaul.
But after trading volumes in commodities futures such as iron ore jumped sharply last week — just as new stock trading rules kicked in — China appears concerned about the potential for the flow of orders to overwhelm the country’s commodities futures markets, which rank second in the world behind the United States in terms of traded volume on the top-three commodity bourses.
A draft of the regulatory changes considered by the Dalian Commodity Exchange, and circulated to a select group of members for feedback, focuses on tightening controls on program or automated trading.
Anyone placing more than 4,000 trades per day based on more than five instances of five orders per second will be considered a program trader.
Traders would be required to provide details of the identity of those conducting program trading, and where they get their funding. Details on program trading strategies and the location of trading servers would also have to be provided to the exchanges. Failure to do this could lead to yet-to-be-defined disciplinary action.
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