(Adopted at the 4th meeting of the 7th Board of Governors on August 21, 2020; issued by Announcement [2021] No. 31 on April 21, 2021; effective as of April 26, 2021)

 

Chapter 1    General Provisions

Article 1          These Rules are made in accordance with the Trading Rules of Zhengzhou Commodity Exchange and other relevant rules for the purposes of promoting the well-regulated development of the hedging market and the hedging functions of the futures market.

Article 2          Zhengzhou Commodity Exchange (the “Exchange”) implements a quota-based management regime for hedging positions.

Hedging quota is classified by months of validity into hedging quota for regular months and hedging quota for near-delivery months.

Hedging quota is classified by direction of intended and actual use into long hedging quota and short hedging quota. Long hedging quota may be used to establish hedging positions with long futures, long call options, and short put options. Short hedging quota may be used to establish hedging positions with short futures, short call options, and long put options.

Article 3          Any client that needs to engage in hedging shall apply to its carrying futures brokerage Member (“FB Member”), who shall, after review, complete the application procedures at the Exchange in accordance with these Rules. Non-FB Members shall apply to the Exchange directly. Any client that engages in futures trading through an overseas broker shall initiate the application procedures through its overseas broker, who shall in turn do so through its carrying FB Member.

The relevant Member shall fully preserve the hedging application materials submitted by Non-FB Members and clients for possible spot checks by the Exchange.

Article 4          Any Non-FB Member or client that applies for a hedging quota shall be an enterprise that is qualified to deal in the relevant commodity or a business organization that provides risk management services to enterprises that deal in the relevant physicals.

Article 5          Members, overseas brokers, and clients shall comply with these Rules when engaging in hedging activities at the Exchange.

Chapter 2    Application and Approval of Hedging Quota for Regular Months

Article 6          A Non-FB Member or client may apply for a hedging quota for regular months either by contract or by product. The quota approved under a contract-based application may only be used for the corresponding contract(s); the quota approved under a product-based application may be used for all listed contracts of the corresponding product.

The products to which the product-based application is applicable will be separately announced by the Exchange. All other products are open to the contract-based application. The Exchange may adjust the hedging quota’s application method, validity period, and approved size applicable to each product based on market conditions.

Article 7          Any Non-FB Member or client applying for a hedging quota for regular months shall fill out the ZCE Hedging Quota Application Form (Regular Months) and submit the following materials to the Exchange:

(1)        the duplicate Business License for Enterprise Legal Person or the certificate of business registration or other documents that can certify its scope of business;

(2)        statement on the size of its business in the corresponding spot market in the preceding year;

(3)        the business plan for the relevant commodity for the current year or the hedging period;

(4)        the hedging plan; and

(5)        any other documents required by the Exchange.

Article 8          A contract-based application for hedging quota for regular months shall be submitted on any trading day between the listing day and the 5th calendar day of the month preceding the delivery month of the contract. Late applications will not be accepted. More than one contract may be specified in each Non-FB Member’s or client’s application.

Article 9          A product-based application for hedging quota for regular months may be submitted on any trading day of the year. The quota approved is valid from the date of approval to June 30 of the following year. For any Non-FB Member or client granted a product-based hedging quota for regular months, the same quota applies to all listed contracts of the product.

Article 10        With respect to any contract-based application for hedging quota for regular months, the Exchange will determine the quota size based on whether the applicant meets the qualification requirements, its dealings in the spot market, the product specified in the application, the direction and size of its positions, its violation record, and other relevant factors.

With respect to any product-based application for hedging quota for regular months, the Exchange will determine the quota size based on whether the applicant meets the qualification requirements, its dealings in the spot market, its violation record, and other relevant factors.

Article 11        The Exchange will review an application and give a reply within five (5) trading days of receiving the complete set of application materials.

Article 12        The hedging quota for regular months may be used on any trading day between the listing day and the 15th calendar day of the month preceding the delivery month of the relevant futures contract. On any trading day between the 16th calendar day and the last calendar day of the month preceding the delivery month, the hedging quota for regular months of a Non-FB Member or client for cotton, white sugar, PTA, rapeseed oil, methanol, flat glass, rapeseed meal, thermal coal, ferrosilicon, manganese silicon, cotton yarn, urea, and soda ash may be automatically converted into a prescribed amount of hedging quota specific for that period. The time and amount of conversion will be separately announced by the Exchange.

Chapter 3    Application and Approval of Hedging Quota for Near-Delivery Months

Article 13        Any Non-FB Member or client applying for a hedging quota for near-delivery months shall fill out the ZCE Hedging Quota Application Form (Near-Delivery Months) and submit the following materials to the Exchange:

(1)        the duplicate Business License for Enterprise Legal Person or the certificate of business registration or other documents that can certify its scope of business;

(2)        statement on the size of its business in the corresponding spot market in the preceding year;

(3)        documents certifying its bona fide need for hedging in the near-delivery months, such as the business plan for the relevant commodity for the current year or the hedging period, processing orders, purchase and sales agreements, VAT invoices, warehouse receipts, inventory certificates, or other proof of ownership of physicals;

(4)        the hedging plan; and

(5)        any other documents required by the Exchange.

Article 14        An application for hedging quota for near-delivery months shall be submitted on any trading day between the 15th calendar day of the second month preceding the delivery month and the 20th calendar day of the month preceding the delivery month of the relevant contract. Late applications will not be accepted.

The Exchange reviews such applications during two review windows and issues replies accordingly. The first review window is the five (5) trading days after the 5th calendar day of the month preceding the delivery month; the second review window is the five (5) trading days after the submission deadline.

Article 15        With respect to any application for hedging quota for near-delivery months, the Exchange will determine the quota size based on whether the applicant meets the qualification requirements, its dealings in the spot market, the product specified in the application, the direction and size of its positions, its violation record, its use of the previously granted hedging quotas, its overall positions in futures and option contracts, quantity of deliverables in its possession, price deviation between the futures and the underlying assets, and other relevant factors.

The aggregate size of the hedging quota for near-delivery months for all contract months of a calendar year shall not exceed the applicant’s production capacity or production plan of the current year or the size of its dealings in the relevant commodities in the preceding year.

Article 16        The hedging quota for near-delivery months may be used from the 16th calendar day of the month preceding the delivery month to the Last Trading Day of the relevant contract.

Chapter 4    Hedging

Article 17        A Non-FB Member or client that has obtained a hedging quota may establish hedging positions either directly or by re-classifying its existing positions.

Article 18        For any Non-FB Member or client that has obtained a product-based hedging quota for regular months, its combined hedging and speculative positions shall not exceed the limit prescribed by the Exchange, which limit will be separately communicated by the Exchange. In addition, its hedging positions shall not exceed the hedging quota it has received; its speculative positions shall not exceed the relevant limit for speculative positions.

Article 19        On any trading day, the combined regular-month positions held by a Non-FB Member or client in all futures and option contracts of the year shall not exceed its annual business volume in the relevant physicals in the direction of the hedging quota.

Article 20        Any Non-FB Member or client whose positions have exceeded the limit prescribed by the Exchange shall voluntarily adjust its positions before the end of the first trading session of the following trading day. If it fails to make such adjustment on time or fails to meet the relevant requirements even after such an adjustment, the Exchange may take such actions against it as arranging for a regulatory meeting, issuing a written warning, adjusting or cancelling its hedging quota, restricting it from opening new positions, or carrying out forced liquidation.

Article 21        Hedging positions involving options will be converted into hedging positions with the corresponding underlying futures upon the exercise of such options.

Article 22        Revolving use of the hedging quota will be prohibited starting from the first trading day of the delivery month.

Article 23        The Exchange may introduce preferential rates for margin requirements and service fees for hedging activities.

Chapter 5    Supervision and Administration of Hedging Activities

Article 24        The Exchange supervises the use of the hedging quotas obtained by Non-FB Members and clients.

Article 25        The Exchange may conduct supervision and investigation with regard to the information provided by a Non-FB Member or client concerning its business operations, credit standing, and trading of futures, options, and physicals, during which the Non-FB Member or client shall provide assistance and cooperation.

The Exchange has the right to require a Non-FB Member or client with a hedging quota to report information about its trading of physicals, futures, and options and to provide supplementary materials.

Article 26        Any Non-FB Member or client that, during the validity period of its hedging quota, experiences a major corporate event that may have a substantial impact on its hedging program shall promptly report such situation to the Exchange. The Exchange may adjust the hedging quota of the Non-FB Member or client based on its state of operations.

Article 27        The Exchange may adjust the hedging quotas of some or all of the Non-FB Members and clients if market risks have risen significantly due to a major change in the spot market of the relevant commodities or an exceptional circumstance in the trading of the relevant futures contracts.

Article 28        Any Non-FB Member or client that needs to adjust its hedging quota shall submit an application to the Exchange in a timely manner.

Article 29        The Exchange may take such actions as arranging for a regulatory meeting, issuing a written warning, adjusting or cancelling the hedging quota, restricting the opening of new positions, requiring the close-out of positions within a prescribed time limit, or carrying out forced liquidation against any Non-FB Member or client with a hedging quota that:

(1)        frequently opening and closing positions using the hedging quota;

(2)        trades in near-delivery months in a manner that is economically unreasonable and is unable to justify such trades; or

(3)        falls under other circumstances that, in the opinion of the Exchange, are inconsistent with the purpose of hedging.

Article 30        Where a Non-FB Member or client has, in its application for the hedging quota or during its hedging activities, provided false materials or engaged in other acts of fraud, failed to truthfully report an account linked by actual control relationship, failed to perform its reporting obligations in accordance with these Rules, or otherwise violated the rules of the Exchange, the Exchange may arrange for a regulatory meeting, issue a written warning, reject its hedging quota application, adjust or cancel any previously approved hedging quota and, if the circumstance is serious, take further actions in accordance with the Rules of Zhengzhou Commodity Exchange on Violations.

Chapter 6    Ancillary Provisions

Article 31        The Exchange reserves the right to interpret these Rules.

Article 32        These Rules take effect on April 26, 2021.

 

 

(This English version is for reference ONLY. In case of any inconsistency between the different language versions, the Chinese version prevails.)