March 20, 2020 / 4:49 AM / 10 days ago

China approves near simultaneous debut of Dalian LPG futures, options

SHANGHAI/BEIJING (Reuters) - China has approved the launch of liquefied petroleum gas (LPG) futures and options on the Dalian Commodity Exchange, the first time the derivatives will debut nearly simultaneously on a Chinese commodities exchange.

The China Securities Regulatory Commission announced the approvals on Thursday and said the LPG futures contract will be launched on March 30, with trading in LPG options to begin the following day.

The move comes as China has been increasing efforts to internationalise its commodities markets, and is expected to give investors the tools to navigate the volatility caused by the coronavirus pandemic’s impact.

The Dalian bourse in northeast China, best known for its iron ore and agricultural product contracts, had recently issued draft guidelines on trading LPG, a refined oil product used as a fuel in vehicles and for cooking.

The guidelines suggested the LPG futures contract was proposed at 20 tonnes a lot with a price fluctuation limit of 4% and transaction fees at 5% of the contract value.

The LPG options contract’s transaction unit would be per lot of LPG futures, with a same price fluctuation limit as the futures contract.

Options give investors the right, but no obligation, to buy or sell an underlying asset at a specified price.

The Dalian exchange said in a statement the listing of LPG futures and options is timely given the widespread market impact of the coronavirus outbreak and provides “a new tool for LPG companies to resume production and hedge risks during the epidemic and support the entire industry supply chain.”

China’s commodities exchanges have so far listed option contracts on products months or even a year after the futures started trading.

“In international derivatives markets, new futures product listings see the launch of options trading at the same time or after a period of time,” the Dalian bourse said.

China has opened up four commodities futures contracts to foreign investors since March 2018, including crude oil and iron ore.

And China’s top three commodities exchanges ended their practice of double-counting trades and began reporting trading volumes on a single-count basis since the start of the year to align with international standards.

Reporting by Emily Chow and Tom Daly; Editing by Edmund Blair and Muralikumar Anantharaman

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