On December 3, Chen Wei, director of the Industrial Products Department of Dalian Commodity Exchange (DCE), briefed on the plan for the internationalization of the iron ore futures at the Forum on Internationalization Plans organized by DCE.
The plan is based on the original contract and rules, with the core IT system and the core clearing and risk control mode unchanged, the currency RMB will be used for quotation and settlement. Overseas investors can participate directly through DCE’s brokerage members in China’s mainlandor indirectly through overseas brokers with inter-broker arrangement with DCE’s brokerage members in China’s mainland.
The overseas funds will be managed in accordance with the rules for China’s designated futures products, and bonded delivery will be used to help solve the physical delivery problem faced by overseas participants.
Regarding the management of the overseas participants, the same rule of real-name verification and one code for one account will apply to all the domestic and foreign trading participants. Foreign orders will only enter DCE’s matching engine after they have passed the pre-trade risk control procedure of the relevant DCE members.
Regarding the management of funds, overseas participants and overseas brokers are required to open RMB futures settlement account and foreign exchange settlement account dedicated to futures trading at the designated depository banks in China.
The foreign currencies that can be used for trading iron ore futures include US dollars and offshore RMB. Specifically, the offshore dollars can only be used as collateral, with the settlement done by DCE members on behalf of the clients with banks. The offshore RMB can directly participate in the iron ore futures trading at a 1: 1 ratio.
For physical delivery, the bonded delivery system has already been implemented, allowing the use of bonded warehouse receipts for physical delivery, transfer, collateral, pledge financing, etc.
Furthermore, DCE has designed rules to allow the use of bonded iron ore in bill-of-lading delivery, in order to encourage direct participation by overseas mining companies. So far, DCE has set bonded warehouse at Dalian Port, with the discount at RMB 10 / metric ton. As the internationalization process further advances, more bonded delivery warehouse will be set at other ports.