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Homepage > Services > Knowledge Center > ZCE Detailed Rules 
Measures for the Administration of Hedging Activities of Zhengzhou Commodity Exchange
 

(Revised at the 26th meeting of the 6th Board of Governors on March 9, 2020, and the revised part shall come into force since April 9, 2020)

Chapter 1 General Provisions

Article 1 These Measures are formulated in accordance with the Trading Rules of Zhengzhou Commodity Exchange and relevant regulations for the purposes of standardizing the development of hedging activities and fully developing the hedging function.

Article 2 The quota management system shall be applicable to the hedging positions of Zhengzhou Commodity Exchange (hereinafter “the Exchange”).

According to different contract months, the hedging quota shall be classified into quota for regular months (which, in these Measures, shall refer to the period starting from the listing day to the 15th calendar day of the month preceding the delivery month) and quota for nearby months (which, in these Measures, shall refer to the period starting from the 16th calendar day of the month preceding the delivery month to the last trading day of the contract).

According to different hedging directions, the hedging quota shall be classified into the long hedging quota and short hedging quota. The long hedging quota shall be applicable to the hedging positions including long positions in futures contracts, long positions in call option contracts and short positions in put option contracts. The short hedging quota shall be applicable to the hedging positions including short positions in futures contracts, short positions in call option contracts and long positions in put option contracts.

Article 3 The clients who need to conduct hedging activities shall apply to futures brokerage members (hereinafter “FB members”) where their accounts were opened. The FB members shall review the applications and submit the applications to the Exchange according to these Measures; the non-FB members shall directly apply to the Exchange. In case that the clients who appoint overseas brokers to engage in the Exchange’s futures trading would like to conduct hedging activities, they shall appoint the overseas brokers to handle the application process, and then the overseas brokers shall appoint relevant FB members to handle the relevant matters.

The application materials of non-FB members or clients for hedging quota shall be properly filed by members for future unscheduled check conducted by the Exchange.

Article 4 The non-FB members or clients applying for hedging quota shall have relevant business qualifications for the products involved in hedging activities.

Article 5 The members, overseas brokers and clients who conduct hedging activities on the Exchange shall comply with these Measures.

Chapter 2 Application and Approval for Hedging Quota for Regular Months

Article 6 The non-FB members or clients applying for the hedging quota for regular months shall fill in the Application Form for the Hedging quota for Regular Months of Zhengzhou Commodity Exchange and submit to the Exchange the following documents:

Ⅰ. a copy of the Business License for Enterprises or Certificate of Incorporation which could certify business scope;

Ⅱ. their business size of the hedging product in the physical market in the previous year;

Ⅲ. their business plan of the hedging product for the current year or during the hedging period;

Ⅳ. the hedging plan of the enterprise;

Ⅴ. other documents required by the Exchange.

Article 7 The applications for the hedging quota for regular months shall be submitted no later than the 5th calendar day of the month preceding the delivery month of the contract for hedging. Any overdue application shall not be accepted by the Exchange. The non-FB members or clients may apply for the hedging quota for regular months for multiple contracts at a time.

Article 8 In terms of the applications for the hedging quota for regular months, the Exchange shall verify the qualifications of non-FB members or clients and determine the quota based on their business performances in the physical market, the products for hedging, the directions and quantities of their positions, and whether they have any violation of rules.

Article 9 Upon receiving the complete application materials for hedging quota, the Exchange shall, within five (5) trading days, check the application materials and reply to the applicants.

Chapter 3 Application and Approval for Hedging Quota for Nearby Months

Article 10 The non-FB members or clients applying for the hedging quota for nearby months shall fill in the Application Form for the Hedging quota for Nearby Months of Zhengzhou Commodity Exchange and submit the following documents:

Ⅰ. a copy of the Business License for Enterprises or Certificate of Incorporation which could certify business scope;

Ⅱ. their business size of the hedging product in the physical market in the previous year;

Ⅲ. the supporting materials that could prove the applicant indeed has the need for hedging, e.g. the business plan of the hedging product for the current year or during the hedging period, the processing orders, the purchase and sales contracts, the invoices, the registered receipts, the certificates of warehouse stocks or other documents that could prove their ownership of the physical commodities;

Ⅳ. the hedging plan of the enterprise;

Ⅴ. other documents required by the Exchange.

Article 11 The applications for the hedging quota for nearby months shall be submitted between the 15th calendar day of the second month preceding the delivery month and the 5th calendar day of the month preceding the delivery month. The Exchange shall not accept any overdue application.

The Exchange shall check the materials and reply to the applications within five (5) trading days after the submission deadline.

Article 12 In terms of the applications for the hedging quota for nearby months, the Exchange shall verify the qualifications of non-FB members or clients and determine the quota based on the their business performances in the physical market, products for hedging, the directions and quantities of their positions, their historical violations of rules, their historical use of hedging quota, the open positions in the corresponding futures and option contracts held by them, quantities of deliverable commodities and whether the futures prices and spot prices are deviating from each other, etc.

The aggregated hedging position quota of a futures contract for nearby months in the whole year shall not exceed the applicant’s production capacity and quantity stated in production plan of the underlying commodity in the current year or the applicant’s operated quantity of the commodity in the previous year.

Chapter 4 Hedging Activities

Article 13 The non-FB members or clients with approved hedging quota shall establish hedging positions by executing trading orders directly or by confirming the historical positions as hedging positions.

Article 14 The hedging positions in an option contract shall be converted into those in the corresponding futures contract when the option contract is exercised.

Article 15 Hedging quota shall not be used repetitively from the 1st trading day (including the day) of the delivery month.

Article 16 The Exchange may adopt preferential measures in terms of the margins and service charges for hedging activities.

Chapter 5 Supervision and Administration over Hedging Activities

Article 17 The Exchange shall supervise and manage the use of the approved hedging quota of non-FB members or clients.

Article 18 The Exchange shall supervise and investigate non-FB members’ or clients’ production and operation conditions, their credit profile and trading activities in futures, options and physical markets. The non-FB members and clients shall assist and cooperate with the Exchange during such process.

The Exchange may require the non-FB members or clients with approved hedging quota to report their trading activities in the physical, futures and options markets and provide additional materials.

Article 19 Non-FB members or clients, within validity period of hedging quota, shall promptly inform the Exchange if any significant change which may have great impact on hedging business have happened to corresponding enterprises.

Article 20 The Exchange may adjust the approved hedging quota of the non-FB members or clients according to market conditions or the operation conditions of the enterprises.

Article 21 Non-FB members or clients shall timely apply to the Exchange for quota adjustments if they need to adjust the hedging quota.

Article 22 If the non-FB members or clients with approved hedging quota have any of the following behaviors, the Exchange may interview and alert them, issue warning letters, adjust or cancel their hedging quota, suspend from opening new positions, request to liquidate positions within a specified time period or conduct forced position liquidation.

Ⅰ. frequently establish and liquidate positions by using the hedging quota;

Ⅱ. behave irrationally in the nearby months and could not provide any justified reason for the irrational trading activities;

Ⅲ. other behaviors the Exchange deems as not-for-hedging.

Article 23 Where non-FB members or clients are found to conduct such fraud when applying for hedging quota or conducting hedging activities as submitting fraudulent materials, untruthfully file the actual controlling relationship of their accounts with the Exchange, fail to perform its reporting obligations in accordance with these Measures and other behaviors violating the Exchange’s rules, the Exchange may interview and alert them, issue warning letters, reject their applications for hedging quota, adjust or cancel their quota, etc. Where the circumstances of their abnormal behaviors are serious, the Exchange may deal with such behaviors in accordance with the Measures for Penalties for Violations of Zhengzhou Commodity Exchange.

Chapter 6 Supplementary Provisions

Article 24 The Exchange shall reserve the right to interpret these Measures.

Article 25 These Measures shall enter into force from April 9, 2020.

(The English version is for reference ONLY. The Chinese version shall prevail if there is any inconsistency.)

 

 

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