(Amended at the 2nd correspondence meeting of the 5th Board of Governors on February 6, 2017; issued by Zhengshangfa [2017] No. 68 on March 7, 2017; effective as of the date of issuance)

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 regulating arbitrage trading activities and promoting the functions and the well-regulated development of the futures market.

Article 2          Any non-futures brokerage Member (“Non-FB Member”) and client that engages in arbitrage activities at the Zhengzhou Commodity Exchange (the “Exchange”) shall comply with these Rules.

Chapter 2    Arbitrage Trading

Article 3          Arbitrage trading is classified into futures arbitrage, options arbitrage, and futures-options arbitrage.

Futures arbitrage consists of calendar spread and intercommodity spread. “Calendar spread” refers to the trading strategy in which a Non-FB Member or client simultaneously establishes a long and an equally sized short position in futures contracts of the same underlying asset but different contract months. “Intercommodity spread” refers to the trading strategy in which a Non-FB Member or client simultaneously establishes a long and an equally sized short position in futures contracts of different underlying assets.

The products for which intercommodity spread is permitted will be announced by the Exchange.

The method of options arbitrage and futures-options arbitrage is governed by the Options Trading Rules of Zhengzhou Commodity Exchange.

Article 4          Futures-options arbitrage is automatically classified as such by the Exchange at the time of clearing. With respect to the other types of arbitrage trading, a Non-FB Member or client may establish the arbitrage positions either directly through a spread order or by re-classifying its existing positions.

Article 5          Arbitrage positions are subject to position limits. The combined speculative positions and arbitrage positions held by a Non-FB Member or client in a futures contract of a regular month or the month before the delivery month shall not exceed two (2) times the speculative position limit for the corresponding period, with the additional requirement that the speculative positions shall not exceed the corresponding speculative position limit. The combined speculative positions and arbitrage positions held by the Non-FB Member or client in a delivery-month contract shall not exceed the speculative position limit for the delivery month.

With respect to an option contract of a particular month, the combined long speculative positions and arbitrage positions, or short speculative positions and arbitrage positions, held by a Non-FB Member or client in the contract shall not exceed two (2) times the speculative position limit for the contract, with the additional requirement that the speculative positions shall not exceed the corresponding speculative position limit.

Article 6          Upon the close-out of arbitrage positions in a particular contract, the corresponding arbitrage positions in the other contract will be automatically converted into speculative positions.

Article 7          Larger-side margining applies to futures arbitrage positions, i.e., Trading Margin is collected based on whichever contract in the arbitrage portfolio that has a higher margin requirement.

The Trading Margin requirement for options arbitrage and futures-options arbitrage is governed by the Options Trading Rules of Zhengzhou Commodity Exchange.

Upon the close-out of arbitrage positions in a particular contract, the Exchange will first release and return the Trading Margin for that contract and then collect the Trading Margin on the remaining open contract.

Article 8          The Exchange reserves the right to adjust the rate of transaction fees for spread orders.

Chapter 3    Supervision

Article 9          Any Non-FB Member or client whose combined speculative and arbitrage 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. Failing to make such adjustment on time or failing to meet the relevant requirements even after such an adjustment entitles the Exchange to carry out forced liquidation.

Article 10        If a Non-FB Member or client engages in fraud, market manipulation, or other illegal or non-compliant activities during the course of arbitrage trading, the Exchange may take such supervisory measures against it as arranging for a regulatory meeting, issuing a warning, issuing a public reprimand, suspending it from opening new positions, and carrying out forced liquidation, and will take further actions in accordance with the Rules of Zhengzhou Commodity Exchange on Violations.

Chapter 4    Ancillary Provisions

Article 11        The Exchange reserves the right to interpret these Rules.

Article 12        These Rules take effect on March 7, 2017.

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