In order to adapt to the spot markets’ changes and needs, enhance continuity of futures products’ prices, and further cut investors’ trading costs and risks, Dalian Commodity Exchange (DCE) issued a notice of adjusting the tick size of coke, coking coal and iron ore futures contracts to RMB 0.5 per ton from RMB 1 per ton on April 10. The adjustment shall come into force on 21:00 on April 17, 2015.
Relevant official of DCE said that tick size is a minimum unit for price change in trading of financial products, and it directly affects efficiency and liquidity of contract trading. At the initial stage of listing of coke, coking coal and iron ore futures, DCE set the tick sizes for them as RMB 1 per ton in light of spot prices and contract sizes at that time. However, as the domestic economy has slowed down and relevant commodities’ demands have dropped since last year, prices of coke, coking coal and iron ore futures see slumps compared with those at the initial stage of listing. Dominant contract of iron ore futures has dropped to about RMB 370 per ton from RMB 977 per ton at the beginning of its listing, a decrease of over 60%. Thus, the tick size of RMB 1 per ton is obviously high for its price, the market trading cost is relatively high, and the price continuity is affected. Besides, the number of the tradable prices in the trading limit range of every trading day has dropped. A price change exerts relatively a higher risk on the market, which affects further optimization of the market efficiency and the market structure. Since last year, according to the suggestions from the market, DCE has studied the adjustment to the tick sizes of relevant products, and solicited opinions from investors at the beginning of this year. In light of the market feedbacks, most investors hope that the tick sizes will be adjusted to RMB 0.5 per ton.
The official introduced that RMB 0.5, 0.2 and 0.1 per ton are set for the tick sizes for domestic products generally. Considering the large amount of clients and deep demands of the markets for coke, coking coal and iron ore futures, the existing market participants’ trading habits, and the reasonability of the proportion of tick size to contract price, RMB 0.5 per ton is set as the tick size.
Market insiders said that the reasonability of tick size will influence the briskness of contracts and function exertion of futures products. If tick size is too low, invalid quotations will dramatically ascend and trading efficiency will drop; otherwise, quotations will be few and it might dramatically lower liquidity of contracts. The adjustment of DCE to the tick sizes of coke, coking coal and iron ore futures adapts to the market changes and the current contracts. The tick size of RMB 0.5 per ton meets the market conditions and the contract design principles, and shows advantages of big-contract futures products for coke, coking coal and iron ore futures. Furthermore, it helps to cut trading cost, guarantee the market depth, enhance the contract prices’ continuity, lower trading risks and enhance investors’ enthusiasm, with no great impact to be imposed on the existing core clients’ trading interest and behaviors.