Risk Management Rules of the Shanghai International Energy Exchange
Large Trader Position Reporting
Forced Position Liquidation
The Exchange applies margin requirements. The Exchange applies different rates of trading margin for a futures contract based on different periods of trading from its listing to its last trading day. The application of different rates of trading margin for each listed futures contract is provided in the risk control parameters section in these Risk Management Rules.
If the trading margin of a futures contract shall be adjusted, the Exchange shall, at the daily clearing on the trading day prior to the next trading day when the adjustment to the margin requirement is applied, settle all positions the futures contract based on the new trading margin rate. If the margin is insufficient at that time, the position holder must deposit funds to meet the new margin requirement, and the relevant Member shall ensure the new margin requirement is met before the opening of the next trading day. The holder of a short position may use standard warrants as the performance bond for the futures contracts with the same underlying and equivalent amount of positions he/she holds, in which case, the trading margin requirement for these positions shall be waived.
The Exchange applies price limits. The price limit for each listed futures contract shall be prescribed by the Exchange.
When the following events or conditions occur in the process of trading a futures contract, the Exchange may, in its sole discretion, adjust the price limit for a futures contract in response to market risk conditions. The Exchange shall issue a public announcement of the adjustment, and report to the CSRC:
1. same-direction price limit occurs in a futures contract for consecutive trading days;
2. a long public holiday is approaching;
3. the Exchange, in its discretion, determines that the market risk is increasing; and/or
4. other circumstances the Exchange deems necessary to adjust the price limit in a market.
In the event that two or more price limits prescribed in these Risk Management Rules are applicable to a futures contract, the higher or highest shall be applied.
When a futures contract is traded at the limit price, trades shall be matched with priority given to the bids or the asks which facilitate the close-out of open interests, except for the new positions opened on the current trading day, and based on the “time priority” rule.
In the event that a Limit-locked market occurs to a futures contract on a trading day (denoted as D1, whereas D0 represents the previous trading day, and the following five (5) successive trading days are D2, D3, D4, D5 and D6), the price limit and the trading margin for the futures contract on D2 shall be adjusted as follows: 1. the same direction limit price for D2 shall be fixed at three percent (3%) greater than that for D1; 2. the trading margin on D2 shall be fixed at two percent (2%) greater than the percentage range or price limit for D2. If the adjusted trading margin is smaller than what is applied at the clearing of D0, the same trading margin applied on D0 shall be used as the trading margin for that contract. If D1 is the first trading day for a newly listed futures contract, the contract’s trading margin on that day shall be adopted as the trading margin at the daily clearing on D0.
The price limit and trading margin for the futures contract described in Article 16 of these Risk Management Rules on D3 shall be adjusted as follows:
1. If a same direction Limit-locked market does not occur on D2, the price limit and trading margin for D3 shall return to the normal level;
2. If a reverse direction Limit-locked market occurs on D2, a new round of a Limit-locked market is deemed to be triggered, i.e. D2 shall become D1 for the new round of Limit-locked market, and the trading margin rate and the price limit for the following trading day shall be set pursuant to Article 16 of these Risk Management Rules; or
3. If the same direction Limit-locked market exists on D2, the price limit for D3 shall be fixed at 5 percent (%) above the price limit on D1, and the trading margin shall be fixed at 2 percent (%)above the regular price limit for D3. If the adjusted trading margin is smaller than what was applied at the clearing of D0, the trading margin on D0 will be applied to meet the margin requirements for that contract.
The Exchange applies the position limits. Positions held by Clients, Non-FF Members, or OSNBPs that have actual control relationship with each other shall be calculated in aggregation as prescribed in these Risk Management Rules. Standards and procedures to identify the actual control relationship among different accounts shall be implemented as prescribed by the Exchange separately.
The following rules shall govern the position limit:
1.a specific position limit is set for each product and its futures contract, based on its particular conditions;
2.different position limit levels are applicable to different trading periods of a contract. The Exchange shall exercise stringent control over position limits during the delivery month of the contract;
3.a percentage-based position limit shall be imposed on Futures Firm Members (the “FF Members”), Overseas Special Brokerage Participants（the *FOR REFERENCE ONLY - 20 - “OSBPs”） and Overseas Intermediaries, and a fixed-amount position limit shall be imposed on Non-FF Members, OSNBPs and Clients;
4.the position limits applying to hedging positions and arbitrage positions shall be subject to the Exchange’s approval; and
5. the Exchange may, based on specific market conditions, set intra-day open position volumes for different listed products and contracts, and for specific Clients, and a part of or all of Members and OSPs. The detailed standards will be stipulated by the Exchange separately.
The general position limit for each futures contract is provided in the risk control parameter section of these Risk Management Rules. The Exchange may adjust the general position limits based on market conditions. And such adjustment shall be approved by the Board of the Directors of the Exchange, and be reported to the CSRC prior to its implementation. When the minimum delivery size of a contract and its trading unit do not match, the rounding of the size of position held in the contract to multiples of a certain number of lots are provided in the risk control parameter section of these Risk Management Rules.
Large Trader Position Reporting
The Exchange applies large trader position reporting. A large trader position report shall include information such as funds, open interests, delivery intention, and other information as prescribed by the Exchange. The Exchange may, in its sole discretion, set and adjust the requirements for large trader position reporting, content of the report, and methods of reporting according to market risk conditions. Members, OSPs, Overseas Intermediaries and Clients shall be responsible for the accuracy and integrity of information in the large trader position reports and other related documents submitted.
A Member, an OSP or a Client whose general position in a futures contract reaches the general position limit set by the Exchange, or an Overseas Intermediary whose general position in a futures contract reaches or exceeds sixty percent (60%) of its general position limit, shall take the initiative to report to the Exchange by 15:00 of the following trading day.
The Exchange, in its sole discretion, may appoint specific Members, OSPs, Overseas Intermediaries or Clients to submit large trader position reports or other supporting materials, and may examine the above-mentioned documents submitted from time to time.
Forced Position Liquidation
The Exchange applies forced position liquidation to manage market risks.
The Exchange shall impose forced position liquidation, if:
1.the clearing deposit balance of a Member recorded on any of the internal ledgers at the Exchange, which are whether to serve its own Clients or its authorized clearing entities, falls below zero (0), and the Member fails to meet the margin requirement within the specified time limit;
2.the open interest of a Non-FF Member, an OSNBP or a Client exceeds the applicable position limit;
3.a Non-FF Member, an OSNBP or a Client fails to round the positions held in a futures contract to multiples as required within the specified time limit, or is not qualified to conduct delivery for matured contracts in its possession;
4.a violation of the Exchange’s rules occurs that warrants a forced position liquidation;
5.any emergency happens that warrants a forced position liquidation; or
6.any other conditions exist that makes the forced position liquidation necessary.
Members and OSPs shall, in the first place, exercise forced position liquidation as required by the Exchange by the end of the first trading session on each trading day or within the time limit prescribed by the Exchange. If a Member or an OSP fails to complete the execution within the prescribed time limit, the Exchange shall enforce the forced position liquidation. If a Member is required to exercise forced position liquidation because its clearing deposit balance recorded on any of its internal ledgers at the Exchange falls below zero (0), opening new position by such Member, related Overseas Intermediaries, OSPs or Clients that are associated with the corresponding internal legers, which are whether to serve the Member’s own Clients or its authorized clearing entities, shall be prohibited before the margin requirements are met.
The Exchange applies risk warning. The Exchange may, as it deems necessary, resort to the following measures, alone or in combination, to warn against and resolve risks:
1. requesting an explanation from market participants with respect to a specific situation;
2. conducting an interview to give a verbal alert;
3. issuing a risk warning letter;
4. giving a reprimand;
5. issuing a risk warning notice to the public; and/or
6. other measures deemed necessary by the Exchange.
The Exchange may request an explanation from relevant Member, OSP, Overseas Intermediary or Client with respect to the situation, or have an interview with the Client or the designated senior executive of a Member, OSP or Overseas Intermediary, when any of the following conditions exists:
1. unusual price movements;
2. unusual trading activities by such Member, OSP, Overseas Intermediary, or Client;
3. any irregularity in the open interest of such Member, OSP, Overseas Intermediary, or Client;
4. any irregularity in such Member’s funds on deposit;
5. any suspected violation or default by such Member, OSP, Overseas Intermediary, or Client;
6. any allegation, accusation or complaint against such Member, OSP, Overseas Intermediary, or Client received by the Exchange;
7. any judicial investigation against such Member, OSP, Overseas Intermediary, or Client; or
8. other conditions as the Exchange deems necessary.