To further address the problem of uncertain place of receipt for the buyer in futures delivery, on July 11 Dalian Commodity Exchange (DCE) revised and improved the one-step delivery process by introducing the new system of “three-step delivery”, which is implemented from the contracts of August. On August 19, DCE’s four products of blockboard, fiberboard, coke, and LLDPE reported successful physical delivery of 252 contracts for August, marking the first physical delivery in the form of “three-step delivery” after DCE’s recent revision to the delivery system with the effectiveness of the new system tested.
On July 11 DCE issued a notice on the revision to the “Detailed Rules of Dalian Commodity Exchange for Settlement”, the “Detailed Rules of Dalian Commodity Exchange for Delivery” and the contracts of relevant products, changing the model of “delivery and payment at the same time” for the buyer and seller in the one-step delivery process to the three-step delivery model of “delivering, selecting and paying” from the 1408 Contracts of the futures products. According to the revised model rules, the process of the settlement of warehouse receipts and payment shall be completed in 3 trading days after the last trading day, namely, the day of submitting standard warehouse receipts, the matching day, and the settlement day (the last delivery day).
The participating enterprises have attached great importance to and made early preparations for the delivery of the August contracts which may adopt the “three-step” delivery for the first time. A total of 5 sellers and 10 buying clients for the 4 products of blockboard, fiberboard, coke, and LLDPE participated in the delivery. On August 15, also the first trading day after the last trading day for the contracts and the day of submitting the standard warehouse receipts, five selling clients submitted the warehouse receipts for the planned deliveries stored in the five warehouses of Zhejiang International Business Group, Bulk Cargo Market of Tianjin Port, Suchuan Logistics (ASEAN bonded), Changzhou Benniu Port and Sinosteel International; on August 18 (the second trading day after the last trading day), 8 buying clients submitted the intentions for 5 warehouses for blockboard, coke and LLDPE with 6 clients submitting the primary intentions and 2 clients submitting the primary and secondary intentions. In the process, the primary intentions of seven buying clients were fully met and the primary and secondary intentions of one client were met with 10 contracts respectively; on August 19 (the third trading day after the last trading day and the last delivery day), DCE collected the delivery payments of the buyers and transferred 80% of the payments to the sellers, with the balance to be paid after the sellers submitting VAT invoices.
DCE is currently adopting the warehouse receipt to warehouse management, which means that DCE matches the buyers and warehouses in the principle of “minimum matching number” to determine the delivery warehouses for the buyers, and then matches the buyers for the matched warehouses and the sellers with the warehouse receipts for the matched warehouses in the principle of “minimum matching number” so as to determine the buyers and sellers in the delivery. The method ensures the fairness of the market, but there is still uncertainty for the delivery site for the buyer. To alleviate the problem and further improve the effect of hedging, based on thoroughly researching the warehouse receipts allocation modes at home and abroad, DCE has optimized the delivery process by designing and introducing the “three-step delivery”. The model will protect the market principle of “openness, fairness and equity” without affecting the sellers in delivery while accommodating the intentions of the participating enterprises, which will effectively alleviate the uncertainty for the place of receipt for the buyer.
Market participants believe that the success of the delivery of the 1408 Contracts has effectively confirmed the operability and effectiveness of the entire process of DCE’s new delivery mode. Ling Xiao, director of futures-spot integration department of Zhejiang Jihai Trade Development Co., Ltd., a buying client participating in the delivery, said that the company had attached great importance to and studied the “three-step delivery” introduced by DCE, and the primary intention for the Bulk Cargo Market of Tianjin Port for Coke 1408 Contract submitted by the company was full met. Ling said that as the company’s main clients and downstream channels feature the regional distribution, if the company receives warehouse receipts of other regions, the costs for taking the delivery will be high with difficulties in sales. The company, as a buyer, submitting intentions and making the voices heard in taking the delivery will greatly enhance the its confidence in participating in the futures hedging transactions.
A DCE official said that the "three-step delivery" is one of DCE’s priorities this year in refining the listed products and improving the capacity for serving the real economy, and by improving the mode and implementing the warehouse receipts swap and other initiatives, DCE hopes to provide effective services in the delivery, cut down delivery costs, facilitate the enterprises’ participation in futures delivery and improve the hedging effect as well as better serve the real economy. After the completion of the delivery, DCE will timely summarize the analyze the new delivery mode, ensure the efficiency and smoothness of all processes and further provide targeted delivery services for the participating enterprises, so as to give full play to the positive effect of the new mode and push up the market operation and services to a new level.