Risk Management Rules
1. Trading margin
Trading margin refers to the funds deposited by a Member into the dedicated settlement accounts of the Exchange for performance guarantee. It is the portion of margin already in use to maintain existing positions held by the Member. The minimum trading margin for a copper cathode futures contract is5% of the contract value.
For a copper cathode futures contract, the Exchange sets different trading margin rates at different trading periods from its listing to its last trading day.
Trading margins for a copper cathode futures contract at different trading periods
If the trading margin of a contract needs to be adjusted, the Exchange will,at time of clearing on the trading day before the day when the adjusted value takes effect, settle all positions in the contract based on the new trading margin rate, and the relevant Member must ensure the new margin requirement is met before market opens on the next trading day.
Holders of short positions may use standard warrants as the performance bond for futures contracts, so long as they correspond to the same quantity of the same underlying asset. In this case, the trading margin requirement for these positions is waived.
2. Price limit
Price limit refers to the limit up or down price prescribed for a contract with in each trading day. Orders with prices beyond this limit are invalid and will not be executed.
If a copper cathode futures contract is in a limit-locked market on a trading day(denoted as D1, whereas the previous trading day is D0 and the successive five(5) trading days after D1 are D2-D6), the price limit and trading margin for the contract on D2 are adjusted as follows:
(1) the price limit for D2 is increased by 3 percentage points on top of that forD1;
(2) the trading margin for D2 is increased by 2 percentage points on top of the price limit for D2. If the adjusted trading margin is lower than what was applied at the time of clearing on D0, the trading margin on D0 applies.
If D1 is the first trading day for a newly listed futures contract, the contract’s trading margin on that day is treated as its trading margin at time of clearing onD0.The price limit and trading margin for the futures contract mentioned above onD3 are to 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 return to the normal level;
(2) If a reverse direction limit-locked market occurs on D2, a new round ofa limit-locked market is triggered, i.e., D2 becomes D1 for the new round,and the trading margin and the price limit for the following trading day will beset according to Article 16 of the Risk Management Rules of the Shanghai International Energy Exchange; or
(3) If a same direction limit-locked market occurs on D2, the price limit for D3 is increased by 5 percentage points on top of the price limit for D1, and the trading margin is increased by 2 percentage points on top of the regular price limit forD3. If the adjusted trading margin is lower than what was applied at the time of clearing on D0, the trading margin on D0 applies.
3. Risk management measures for major price fluctuations
When the cumulative price movement (denoted as N) of a futures contract reaches
(1) 7.5% or more over 3 consecutive trading days (denoted asD1-D3);
(2) 9% or more over 4 consecutive trading days (denoted as D1-D4); or
(3) 10.5% or more over 5 consecutive trading days (denoted asD1-D5), the Exchange may, in its sole discretion, take one or more of the following measures, provided the decision is reported to the CSRC before the implementation:
(1) require additional trading margin from some or all of the Members and/or OSPs on either or both of the long or short positions at the same or different rates of trading margin;
(2) limit the withdrawal of funds by some or all the Members;
(3) suspend the opening of new positions for some or all of the Members and/or the OSPs;
(4) adjust the price limit, but not more than ±20% following adjustment;
(5) require the close-out of positions by a prescribed deadline;
(6) exercise forced position liquidation; and/or
(7) take other measures the Exchange deems necessary
4. Position limit
Position limit means maximum position a Member, OSP, Overseas Intermediary,or client is permitted to hold.A percentage-based position limit applies to FF Members, OSBPs and Overseas Intermediaries. Both a percentage-based and a fixed-amount position limit apply to Non-FF Members, OSNBPs, and clients.
5. Large trader position report in A Member, an OSP or a client whose general positions in a futures contract have reached the general position limit set by the Exchange, or an Overseas Intermediary whose general positions in a futures contract have reached 60% of the general position limit, must voluntarily file a large trader position report with the Exchange by 3:00 p.m. of the following trading day.
The Exchange may, in its sole discretion, require specific Members, OSPs,Overseas Intermediaries or clients to submit large trader position reports or other supporting materials, and may examine the above-mentioned documents from time to time.
6. Forced position liquidation
The Exchange will perform forced position liquidation, if:
(1) the clearing deposit balance of a Member recorded on any of the internalledgers at the Exchange, whether they are for the Member’s own clients or forwhom it has been authorized to clear trades, falls below 0, and the Member failsto meet the margin requirement within the specified time limit;
(2) the open positions of a Non-FF Member, an OSNBP or a client exceed theapplicable position limit;
(3) a Non-FF Member, an OSNBP or a client fails to bring its open positionsin a futures contract to the required multiples of a designated unit size withinthe specified time limit, or is not qualified to make or take delivery for expiredcontracts it holds;
(4) a violation of INE rules occurs that warrants a forced position liquidation;
(5) any emergency occurs that warrants a forced position liquidation; or
(6) any other condition exists that makes the forced position liquidationnecessary.
7. Risk warning
The Exchange issues risk warning. The Exchange may, if it believes it to benecessary, take one or a combination of the following measures to warn againstand resolve risks: (1) requesting an explanation from market participants withrespect 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 warningnotice to the public; and/or (6) taking other measures deemed necessary by theExchange.
8. After market close on the third trading day before the last trading day of a copper cathode futures contract, positions held by individual clients who are not able to issue or accept tax invoices during delivery must be closed out completely. From the second trading day before the last trading day on, the positions held by such clients will be subject to forced position liquidation by the Exchange.