A cargo vessel unloads iron ore at Lianyungang Port, Jiangsu province. [Photo by Wang Chun/For China Daily]
The newly launched iron ore options will not only help China to have more decision power in the international market but also further enrich the country's financial market, said, experts.
Approved by the China Securities Regulatory Commission, the iron ore options started trading at the Dalian Commodity Exchange (DCE) on Monday. With iron ore futures as the underlying assets, the newly launched options include 10 contracts.
Speaking at the launch ceremony, Luo Dongsheng, vice-mayor of Dalian, said the city owns the only bonded delivery warehouse for iron ore futures, providing services to the northeastern parts of China, Japan, and South Korea. The launch of the iron ore option has provided market participants a more convenient and diversified risk management tool.
"The iron ore option will help China perfect its steel and iron industrial management system. China will also be able to accelerate its pace in building itself into an international iron ore pricing center," he said.
The iron ore option is the seventh commodity option launched in China so far. DCE president Li Zhengqiang said that the exchange has been able to introduce a complete product portfolio that covers futures, options, and swaps. The spot market and the futures market will be better linked, and so will be the domestic and overseas markets, he said.
"This is a major attempt by the bourse to boost quality development of the real economy," said Li.
Li also stressed the importance of building a derivative market which is in line with China's global economic status and demand. More companies and financial institutions from home and abroad should be involved in optimizing the market structure.
"The yuan-denominated derivatives will better reflect the true market demand in China and help the Chinese prices be more influential in the international market," he said.
According to the statistics provided by DCE, Chinese iron ore futures had an accumulated trading volume of 236 million contracts in 2018. By the end of February this year, 118 overseas clients from 12 countries and regions had opened accounts at the exchange, and 79 of them were involved in the trading. The average daily trading volume of overseas clients reached 21,000 contracts.
Liu Wensheng, deputy director of the ferrous metal department at First Futures, said that the iron ore options have been introduced at a time when the market is witnessing drastic fluctuations in iron ore prices. While most of China's iron ore options were traded over the counter in the past, the newly launched derivatives will serve as an important risk-hedging method apart from traditional futures contracts.
In February 2015, the Shanghai Stock Exchange launched the China 50 ETF option in 2015, ushering in the first option product in the Chinese financial market. The DCE launched soybean meal futures options in March 2017, which was the first futures option in China.
Efforts have also been made to enrich China's financial derivatives market. CSRC vice-chairman Fang Xinghai said at the 15th China (Shenzhen) International Derivatives Forum held in late November that a total of 14 new futures products have been introduced so far this year, hitting a record high. The Shenzhen Stock Exchange unveiled rules on Saturday for the pilot trading of stock options.