Shanghai launches global first rubber options

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The world’s first natural options began trading on the Shanghai Exchange yesterday, in a move that will help risk management and boost China’s pricing power.

“The launch of the options for natural rubber will provide more refined risk management tools for relevant enterprises, help reduce the cost of the natural rubber ‘insurance-plus-futures’ project and better serve the national poverty alleviation strategy and the rural revitalization strategy,” said Cheng Shen, deputy director of the futures supervision department of the China Securities Regulatory Commission.

The insurance-plus-futures project uses a combination of insurance and futures to help spread price risks for agricultural products.

Shanghai’s development as an international financial center has entered the final stage, and the listing of natural rubber options marks a step forward in the innovation and development of derivatives on exchanges in China, according to Li Jun, deputy director of the Shanghai Financial Supervision Administration.

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“Natural rubber options will offer more abundant and more flexible financial derivatives for entity enterprises and institutions in the relevant industrial chain,” Li said.

“So, this is of great significance to improving the price discovery function of the futures market and strengthening the pricing power and global influence of Shanghai as an international financial center.”

The options are set as an American option, which means they can be exercised anytime during their life, and not only at expiration.

Options for cotton and corn also started trading yesterday on the Zhengzhou Commodity Exchange and the Dalian Commodity Exchange, respectively. The launch of the three new options doubled the amount of options listed on the country’s three major commodities exchanges.

China had previously launched options for soybean meal and sugar in 2017 and copper options in September 2018.

Earlier this month, Gao Li, spokesman for the CSRC, said that spot prices for natural rubber, cotton and corn had seen frequent fluctuations in recent years and the use of options would help companies manage risks.

Source: SHINE Editor: Gao Wei

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