Shanghai Futures Exchange (SHFE), one of the world’s largest commodity derivatives exchanges, has officially announced a public solicitation of opinions on its new internationalisation rules. This strategic move signals SHFE’s readiness to enable direct international access to its wide array of listed products, a pivotal departure from its previous operational model.
Historically, foreign access to SHFE’s core products was often facilitated indirectly, typically requiring related contracts to first be listed on its subsidiary, the Shanghai International Energy Exchange (INE), before becoming accessible via internationalised routes. This multi-layered approach, while effective for initial opening-up, often presented additional steps for global participants. The latest announcement indicates a significant streamlining of this process, directly inviting international engagement with SHFE’s existing and future contracts.
The Strategic Imperative: Why China is Opening Up
As the world’s largest consumer and producer of many key industrial metals and other commodities, China has long sought to align its immense physical market presence with greater pricing power on the international stage.
The efforts to internationalise its derivatives markets are strategically aimed at attracting global capital, which is crucial for deepening market liquidity and efficiency by drawing a more diverse pool of international investors including institutional funds and hedgers. This increased international participation is also expected to foster more robust price discovery mechanisms, ensuring that Chinese benchmark prices better reflect global supply and demand dynamics.
Furthermore, by allowing foreign entities to trade directly in yuan-denominated contracts and potentially post margins in foreign currencies, China seeks to strengthen Renminbi internationalisation. Ultimately, a more mature and accessible derivatives market will provide enhanced hedging tools for global companies with exposure to Chinese commodity prices, enabling more effective risk management.
This latest development from SHFE appears to be a much more comprehensive and sweeping overhaul, proposing changes across market access, trading, settlement, risk control, and delivery for potentially 18 of SHFE’s domestic contracts, including prominent ones like alumina, nickel, and copper cathodes.
What This Means for Global Investors
For international traders, hedgers, and institutional investors, SHFE’s impending direct access offers a range of compelling opportunities. This includes unparalleled diversification through direct access to China’s vast domestic commodity markets, extending beyond traditional global exchanges. Streamlined access also promises greater cost-efficiency, reducing complexity and potentially lowering operational overhead for engaging with Chinese derivatives.
Furthermore, investors can gain more direct and efficient exposure to the pricing dynamics of the world’s largest commodities consumer, with increased foreign participation expected to further boost market liquidity, making it easier to enter and exit positions. The public opinion solicitation phase for these changes is currently underway, with deadline set for early June, and SHFE is expected to detail the specific products to be opened and their anticipated internationalisation timeline following this process.
Stay tuned as China takes this monumental step towards a more interconnected global commodity market.
Start Trading with Orient Futures Singapore
Being an Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), when foreign clients participate in internationalised futures contracts in these Chinese markets with us, they have direct access to trading, clearing, and settlement. Our parent company, Shanghai Orient Futures, is the largest broker in terms of aggregated volume across the five regulated exchanges in China.
Orient Futures Singapore also currently holds memberships at the Singapore Exchange (SGX), Asia Pacific Exchange (APEX), and ICE Futures Singapore (ICE SG). Starting August 2023, corporate clients can also gain access to the B3 Exchange through us, opening additional trading avenues.
Expect streamlined processes and an easy-to-use interface designed for minimal latency, accompanied by our team’s round-the-clock availability on trading days to provide assistance for all your trading needs.
