Chapter 1 General Principles

Article 1

Subject to the Interim Measure of Tianjin Bohai Commodity Exchange for Trading Market Supervision and Administration, Jin Zheng Fa[2009] No.32 promulgated by the Tianjin People’s Government, and the Rules of Tianjin Bohai Commodity Exchange for Continuous Spot Trading Management made by the Tianjin Bohai commodity Exchange, henceforth the Exchange, the guidelines herein are stipulated to strengthen the risk management of continuous spot trading, protect the legal rights and benefits of involved parties and ensure proper commodity trading operation on the Tianjin Bohai Commodity Exchange.

Article 2

The Exchange has implemented the Margin Requirement System, the Daily Price Limits System, the Position Limit System, the Large Account Reporting System, the “Transfer on Behalf of Trader”(TOBOT) System, and the Risk Warning System.

Article 3

The Exchange, authorized service providers (members), and traders must comply with this Measures.

Chapter 2 Margin Requirement System 

Article 4

The Exchange has implemented the Margin Requirement System. The margin requirement shall be 20% of the contract value.

Article 5

The Exchange reserves the right to unilaterally or bilaterally, proportionally or non-proportionally, and for partial traders or for all traders, increase the margin requirement based upon market circumstances.

Article 6

In the case of a long period of statutory holidays, the Exchange may adjust the margin requirement based upon market circumstances before the market closes.

Article 7

If the Exchange adopts two or more measures prescribed in this Chapter to simultaneously adjust the margin requirements, the measure with the highest margin requirement prevails.

Article 8

The Exchange shall notify the public about the margin requirement adjustment in a timely manner, and report to the Trading Market Supervision and Administration Committee for the record.

Chapter 3 Price Limits System

Article 9

The Exchange has implemented the Price Limits System and sets a daily price limit for each listed commodity contract.

Article 10

The Exchange reserves the right to adjust the price limits and the compensation rate for deferred delivery for each listed commodity based upon market circumstances.

Article 11

The typical daily price limits are ±8% of the settlement price on the previous trading day.

The normal compensation rate for deferred delivery of the listed commodities is 0.2‰.

Article 12

When the listed commodity contract is traded at the price limit (the upper-bound or the lower-bound), the matching principle is in priority order of “transfers on behalf of traders”, “regular transfers”, and “time”. However, the priority for “regular transfers” is not applicable to contracts made on the same trading day.

Article 13

The phrase “no continuous quotes on one side at the price limit” means that within the 5 minutes preceding the closing of the market, there have been bid offer quotes at the upper limit but no ask offer quotes, or there have been ask offer quotes at the lower limit but no bid offer quotes, or transactions were completed immediately after bid or ask offers had been initiated so that the price has not moved away from the price set as the limit for a certain commodity contract on a certain trading day.

Article 14

If the situation of “no continuous quotes on one side at the price limit” occurs in one listed commodity on a certain trading day (noted as the Nth trading day), then the price limits on the listed commodity are adjusted to be ±6% of the settlement price of the previous trading day for the (N+1)th trading day, and the compensation rate for deferred delivery is adjusted to be 2‰.

Article 15

If a “no continuous quotes on one side at the price limit” situation does not occur on the (N+1)th trading day as it did on the Nth trading day, then the price limit resumes as ±8% of the settlement price of (N+1)th trading day, and the compensation rate for deferred delivery resumes as 0.2‰ for the (N+2)th trading day.

Article 16

If, on the (N+1)th trading day, the situation of “no continuous quotes on one side at the price limit” occurs in the same direction as it did on the Nth trading day for the same listed commodity, then the price limits on the listed commodity are adjusted to be ±3% of the settlement price of the (N+1)th trading day, and the compensation rate for deferred delivery is adjusted to be 2% for the (N+2)th trading day.

Article 17

If a “no continuous quotes on one side at the price limit” situation does not occur on the (N+2)th trading day as it did on the (N+1)th trading day, then the price limit resumes as ±8% of the settlement price of the (N+2)th trading day, and the compensation rate for deferred delivery resumes as 0.2‰ for the (N+3)th trading day.

Article 18

If, on the (N+2)th trading day, the situation of “no continuous quotes on one side at the price limit” occurs in the same direction as it did on the (N+1)th trading day for the same listed commodity (that is, “no continuous quotes on one side at the price limit” is reached in the same direction for three consecutive days), upon the closing of the market on the (N+2)th day, the Exchange shall practice mandatory position reduction. If the price limit that is reached in the same direction for three consecutive days is caused by traders or trading activities, then the Exchange will deal with the situation according to Chapter 7.

Article 19

When the accumulated increasing rate over two consecutive trading days (known as the Nth trading day, and (N+1)th trading day) for one commodity contract has reached 14%, then the price limits are adjusted to be ±3% of the settlement price of the (N+1)th trading day, and the compensation rate for deferred delivery is adjusted to be 2% for the (N+2)th trading day.

If a “no continuous quotes on one side at the price limit” situation does not occur on the (N+2)th trading day as it did on the (N+1)th trading day, then the price limit resumes as ±8% of the settlement price of (N+2)th trading day, and the compensation rate for deferred delivery resumes as 0.2‰ for the (N+3)th trading day.

If, on the (N+2)th trading day, the situation of “no continuous quotes on one side at the price limit” occurs in the same direction as it did on the (N+1)th trading day for the same listed commodity, upon the closing of the market on the (N+2)th day, the Exchange shall practice mandatory position reduction.

Article 20

The term “Mandatory Position Reduction” means that the Exchange shall automatically match the outstanding loss-ceasing “transfer” quoted orders, whose quoted prices equal the daily price limit, with positions held by traders whose net holding of the contract is profitable, at the price set forth as the daily limit. If a trader has both short and long positions on the contract, then the net outstanding positions participate in the calculation of mandatory position reduction. Other positions shall be automatically offset with each other and locked as opposites. Procedures are described below:

1)    To determine the unit profit or loss of a trader’s net holding:

The unit profit/loss of a trader’s net holding of the listed commodity = the net profit/loss of the trader’s net holding of the listed commodity/ [the net position of the listed commodity (lot) x trading unit (ton/lot)]

A trader’s profit or loss on each contract in his or her net holding refers to the profit or loss as the difference between the actual purchasing prices of contracts that the trader holds and the settlement price of the contracts on that day.

2)    To determine the scope of the “transfer” quoted orders:

Upon the closing of the market on the (N+2)th trading day, the “transfer” quoted orders are those unfilled orders, which are quoted at the price limit, with a total loss greater than or equal to 6% of the contract value of the trader’s net holding. A trader who is unwilling to have the “transfer” quoted orders as described above shall withdraw the orders before the market closes, and such orders are not considered as the “transfer” quoted order.

3)    To determine the matching range of net positions with a profit:

If the unit profit of a trader’s net holding of the listed commodity is greater than 0, then the position will be considered for matching.

4)    Allocation Principles and Methods of Matching

4.1 Allocation Principles of Matching

(1)  Within the scope of matching, there are three levels of allocation according to the amount of profit.

Orders that need to be filled shall be first allocated to positions that are of matching scope with a unit profit of net holdings greater than 6% of the settlement price on  the (N+2) trading day (“positions with more than 6% profit”, hereafter);

Orders shall be allocated next to positions whose unit profit of net holdings is equal to or greater than 3%, but less than 6%, of the settlement price on the (N+2) trading day(“positions with more than 3% profit”, hereafter);

Orders shall then be allocated to positions whose unit profit of net holdings is less than 3% but greater than zero of the settlement price on the (N+2) trading day(“positions with more than zero profit”, hereafter);

(2) The allocation ratios among the allocation levels mentioned above are determined by the total quoted orders to be transferred or filled (the remainder of quoted orders to be transferred) and the amount of profitable holdings that meet the matching requirements to be transferred on each level.

4.2 Allocation Methods and Steps of Matching

If the number of positions of the unit profit of a trader’s net holding with more than 6% profit is greater than or equal to the number of “transfer” quoted orders to be filled, then the “transfer” quoted orders to be filled shall be allocated among the positions with more than 6% profit in accordance with the ratio between the amount of “transfer” quoted orders and the number of positions with more than 6% profit.

If the number of positions of the unit profit of a trader’s net holding with more than 6% profit is less than the amount of “transfer” quoted orders to be filled, then the positions with more than 6% profit shall be allocated among the “transfer” quoted orders to be filled in accordance with the ratio between the amount of the “transfer” quoted orders to be filled and the number of positions with more than 6% profit. The remainder of “transfer” quoted orders to be filled shall be allocated among positions with more than 3% profit, using the same method. If there are remaining “transfer” quoted orders to be filled after that, they shall be allocated among positions with greater than zero profit. There shall be no further allocation if there is still a remainder after the last step.

5)    The handling of the fractional quantity of “transfer” quoted orders

The quantity of orders matched uses the unit “lot”. A quantity less than one lot will be calculated as follows:  The integral part of the matched quantity will be allocated to each trading code first, and then the fractional part will be allocated in order of size.

6)    The Execution of Mandatory Position Reduction

Mandatory Position Reduction shall be automatically executed upon the closing of the market on then (N+2)th trading day in accordance with the principles of Mandatory Position Reduction. The result of the mandatory position reduction shall be taken as the result of the trader’s (N+2)th trading day.

7) After the mandatory position reduction is executed, the daily limits shall resume to the normal level on the next trading day as prescribed in the contract.

Article 21

The economic loss incurred by the execution of mandatory position reduction described above shall be borne by the trader.

Article 22

If the risk associated with the commodity contract still exists after having taken the measurements described above, the Exchange shall declare that it is an abnormal situation, and take actions to control risks in accordance with applicable regulations.

Chapter 4 Position Limit System

Article 23 The Exchange adopts the Position Limits System.

The term “Position Limit” refers to the maximum number of commodity contracts on one side (buying or selling) that a trader can hold, as determined by the Exchange.

Article 24

In the case that the total number of positions held on one side for one listed commodity is greater than 1 million lots, the position limits of each participating trader are limited to 20% of the one-side open interest of that listed commodity. In the case that the total number of positions held on one side for one listed commodity is equal to or less than 1 million lots, the position limits of the said contract for each participating trader are limited to 200,000 lots on one side.

Article 25

The Exchange reserves the right to adjust the position limit of one listed commodity for each trader based on the market conditions of each listed commodity.

Article 26

The calculation of the amount of the position limit for a listed commodity within a trading period is based on the total amount of positions held at the end of the previous trading day.

Article 27

The total holdings of each trader shall not exceed the position limit prescribed by the Exchange. The Exchange has the right to transfer the excessive positions on behalf the trader on the next trading day in accordance with applicable regulations.

Article 28

If a trader has more than one trading code, the total holding of his trading codes shall not exceed the trader’s position limit. The Exchange has the right to transfer the excessive positions on behalf the trader.

Chapter 5 Large Account Reporting System

Article 29

The Exchange has implemented a large account reporting system. If the number of positions of a certain contract held by a single trader has reached a threshold that is greater than or equal to 80% of the position limit the Exchange has set forth for the trader’s position, the trader shall report his financial and position situations to the Exchange. The Exchange may use its discretion to adjust the reporting level based on risk conditions in the market.

Article 30

If the holding of a trader has reached the reporting threshold defined by the Exchange, the trader shall report to the Exchange before the next trading day closes, on his own initiative. If another report or a supplementary report is needed, the Exchange shall notify the trader in question.

Article 31

A trader who has reached the reporting threshold shall provide the Exchange with the following:

1) the completed Large Account Report by the trader, with the trader’s name, trading code, commodity symbol, current outstanding long/short position holdings, margin for outstanding positions, available funds, etc;

2) an explanation of fund source(s);

3) other materials required by the Exchange.

Article 32

The Exchange shall examine and verify the materials provided by traders on an unscheduled basis.

Article 33

If a trader has more than one trading code and the total number of position holdings for all his or her trading codes has reached the reporting threshold, the trader shall provide the Exchange with the relevant materials.

Chapter 6 “Transfer On Behalf of Trader” System

Article 34

In order to control trading risks and protect the rights and interests of all traders, the Exchange has implemented the “Transfer on Behalf of Trader” system (TOBOT). The term “Transfer on Behalf of Trader” (TOBOT) refers to a risk prevention measure the Exchange takes to mandatorily transfer part or all of the contracts owned by a trader who is in violation of the rules and regulations.

Article 35

If a trader is under one of the following conditions, the Exchange shall use its discretion to exercise the “TOBOT” option:

1) the balance in a trader’s fund account is insufficient and has not been brought up to a sufficient level before 9:30AM on the next trading day;

2) the number of the positions he or she is holding exceeds the position limit;

3) the behavior of a trader violates the rules or regulations prescribed by the Exchange;

4) TOBOT is required by the Exchange as an emergency step;

5) Other situations that call for the “TOBOT”.

Article 36 Procedures for Executing TOBOT

1)    Notification

The Exchange shall send a notification of TOBOT (the “Notification”) along with the same day’s settlement data to the trader in question via the e-trading system of the Exchange. When the sending of the notification is confirmed by the e-trading system, it is deemed that the delivery of the notification has been successful.

2) Execution and Confirmation

2.1 Before 9:30AM on the next trading day, the trader in question must send more funds to meet the margin requirements, or voluntarily liquidate his or her positions until the requirements of the Exchange have been met. Meanwhile, only “liquidation” trading will be allowed by the e-trading system for the trader in question and any new position is prohibited automatically by the Exchange’s e-trading system.

2.2 If the trader in question does not meet the Exchange’s requirements within a prescribed time period, the Exchange will execute “TOBOT” according to the market price for those traders in question until the requirements have been met.

2.3 Upon completion of the “TOBOT”, the Exchange shall send the TOBOT result to the trader in question via the e-trading system. The result will be considered “successfully delivered” when the e-trading system confirms the result has been sent.

2.4 If the “TOBOT” can not be completed on the same day due to daily price limits or other market conditions, it shall be continued on the next trading day until the “TOBOT” is completed.

2.5 There is no notification in writing needed from the Exchange for clauses 2.2, 2.3, and 2.4 above.

Article 37

The losses and legal consequences incurred from the “TOBOT” shall be solely borne by the trader in question.

Chapter 7 Emergency Situations Handling

Article 38

During trading hours, the Exchange may declare an emergency and take measures to mitigate the risks in the following cases:

1)  Trading disruption due to earthquakes, floods, fire, wars, strikes, computer system failure, internet failure, and/or other irresistible forces that are not attributable to the Exchange. 

2) A crisis emerges from settlements or physical delivery, which is having/ will have a significant impact on the market;

3) The price of a listed commodity contract has reached the price limit in the same direction for consecutive days, and there is evidence showing that some traders who have violated the rules, regulations, or measures of the Exchange are having/will have a huge impact on the market;

4) Other situations stipulated by the Exchange.

When an event specified in clause 1) of Article 38 occurs, the Exchange may take measures such as adjusting the opening/closing hours, or suspending trading. When an event specified in clauses 2), 3) or 4) of Article 38 occurs, the Exchange may adjust the opening/closing hours, suspend trading, adjust price limits, adjust trading margins, suspend new positions, force traders to close out positions within a specified time limit, exercise the “TOBOT” option, restrict funds withdrawal, etc.

Article 39

Should the Exchange declare an emergency and suspend trading, the duration of such suspension must not be longer than 3 business days.

Article 40

The Exchange shall make an announcement to the public before declaring an emergency and deciding to take action on the emergency. Any losses incurred from the corresponding measures adopted by the Exchange shall not be borne by the Exchange.

Chapter 8 Risk Warning System

Article 41

The Exchange has implemented a Risk Warning System. Whenever deemed necessary by the Exchange , the Exchange may adopt one or more methods separately or simultaneously, including requesting situation reports, conducting interviews, preparing written alerts, using public condemnation, and releasing a  risk warning notice, to warn of and avert risks.

Article 42

If one of the following situations occurs, the Exchange may require a trader to report his situations or make an appointment with a trader or his staff to discuss the situation and warn of the risk:

1)      The price of a listed commodity contract has been fluctuating abnormally;

2)      A trader’s trading behavior is abnormal;

3)      The number of positions and funds held by a trader have changed dramatically;

4)      A member appears to have been involved in rule violations, a judicial investigation or an arbitration;

5)      Other situations deemed necessary by the Exchange.

If a trader is required by the Exchange to report his or her current situation, the trader shall faithfully report the required matter within the required time, at the required location, and in the required manner.

If a trader is required to attend an interview to discuss the risks to be alerted, the trader shall conscientiously fulfill the requirement within the required time, at the required location, and in the required manner.

Article 43

In one of the following situations, the Exchange may send a risk-warning letter to all traders:

1)        Domestic or international commodity markets are experiencing significant changes;

2)        Traders appear to be involved in rule violations;

3)        There are significant risks to traders’ trading;

4)        Other situations deemed unusual by the Exchange.

Chapter 9 Supplements

Article 44

Any violation if this Measures shall be dealt with in accordance with pertinent regulations prescribed in the Rules of Tianjin Bohai Commodity Exchange for Continuous Spot Trading Management.

Article 45

The interpretative right of this Measures belongs to the Tianjin Bohai Commodity Exchange.

Article 46

This Measures shall be in effect as of the date when they are announced.

Tianjin Bohai Commodity Exchange

December 15, 2009