China Futures Market Risk Review 10 (Natural Rubber r708 event)

Review and reflection on the r708 Event of Natural Rubber

Hainan Zhongshang is located in China's main Natural Rubber Producing area. As one of its listed varieties, natural rubber is advantageous. Such an ideal configuration should have played a greater positive role in the spot market and the local economy. However, the occurrence of the r708 event has a huge impact on the domestic natural rubber futures spot market, this results in heavy losses to all participants.

I. Cause and Process

As early as the r608 contract in 1996, it had already played a "Multi-empty" market, mainly as a result of speculative multi-headed use of natural disasters in Southeast Asian rubber producing countries and main natural rubber producing areas in China for warehouse export. The r708 incident occurred when the market supply was surplus. At the beginning of 1997, in the r703 contract, multiple customers pulled up the market price against the market, increasing the number of natural rubber Warehouse orders stored in fixed-point databases of Hainan Zhongshang. Before the r708 forced empty market, the registered warehouse order has reached more than 40 thousand tons. The fuse of the r708 incident should be the sharp rebound of Tokyo Tianjiao after the first line of 110 yen/kg stabilized. A large number of domestic speculators want to take advantage of the r706 contractArticleHowever, due to the pressure on the market by the bear-holding force headed by the local spot commodity, coupled with insufficient time, they had to give up the contract and take the initiative to leave it blank. As a result, the overall collapse of the rubber price, four consecutive days of decline, a new low of 9715 yuan/ton. However, the Bulls in the market are unwilling to fail, and the strong reserve funds are mobilized to make a comeback. They quietly built more on r708. In the next half of March, the price of the rubber was flat from 10000 water points to more than 11300 points. The shorts are not weak, and a large number of natural rubber stock orders have been transferred from the domestic spot market to the warehouse of the Chinese merchants. They claim that they have mastered more than 0.1 million tons of spot Warehouse orders and are ready to meet each other through real-disk delivery. The bulls are mainly speculative giants in Shanghai and Jiangsu and Zhejiang provinces. They say they are preparing to expand the Shanghai market after taking stock glue to attract small and medium retail investors to join. The multi-Air War escalated again from the end of June to the beginning of July, and the two sides formed a confrontation between 11200-11400. In December July 4, the Bulls suddenly experienced difficulties and began to wash up and down their disks. After the r708 contract fell to 10790, multiple parties forced to pull up, closed to the daily limit, then pushed up the price continuously, and hold a giant warehouse of nearly 0.23 million hands. R708 reached the first tier in 12600.

The huge risks have already been shared by Hainan Zhongshang Institute and some members. On October 27 and February 27, the Exchange Council continued to discuss the r708 issue and mediate the issue among many large accounts. As there was no progress in the negotiation, on June 23, July 30, the Chinese business office issued a statement stating that "the deposit for the position of the r708 buyer was raised in stages and has been raised since the 30th, except for those who have been approved by the exchange for their hedging physical delivery positions that have not yet been created, it is prohibited to open new warehouses on the r708 contract." On the same day, the Chinese business office issued a message again, suspending the storage of natural rubber from the Jinlong and jinhuan warehouses to which the agricultural reclamation belongs. So far, the r708 war has basically ended. Starting from January 1, 400, with a daily drop-down Board (11160 every day on the first three days, and 20 every day on the next seven days), the company won the cards at 59728 yuan/ton and held positions.

The r708 event processing lasted for several months. In the meantime, hundreds of millions or even billions of economic disputes are pending in courts. The China Securities Regulatory Commission has penalized a group of futures brokerage institutions and market participants for the largest scale in history. The direct result of the r708 event is that the positions of nearly 20 seats in multiple warehouses are exploding, and the multiple parties pay 29864 of the default fines by 20% of their positions on January 1, 33.3 billion RMB; multiple parties paid compensation of nearly 0.2 billion yuan in the settlement of the agreement on August 4-13; multiple parties barely took over 13000 tons of spot goods in the delivery; while the empty party intends to deliver 0.16 million tons of spot goods, the final period and spot market were sold at an average price not higher than 8000 yuan/ton, with a total loss of 1.4 billion yuan. Therefore, the r708 incident was a bet that seriously damaged the rules of the futures market and suffered both losses.

Ii. Thoughts on the r708 event

The reason why the 1r708 contract is forced blank is not only the multi-headed capital, adequate preparation, and fierce operation, but also related to omissions in the rules formulated by the exchange. For example, after the central provider opens the delivery amount, the Detailed Rules for Implementation guarantee are not revised accordingly, and the limited delivery method is basically extended. There is obviously a problem here, that is, the amount of deposits required by multiple parties to guarantee performance delivery. In addition, when the market is forced to leave blank, the Exchange requires that speculative disks other than the 200-hand (unilateral) seats of each seat be forcibly closed on the day of the arrival of the spot month, and in the delivery month, the daily rise and fall of the Board reduced to + 20 yuan/ton. However, at that time, the dominant multi-head disk held up the price to the highest position, and frequently switched the positions, concentrated the positions on limited seats and waited for forced liquidation, while its positions were relatively hidden, in this way, it is easier to form a warehouse. Therefore, when modifying trading rules and issuing temporary provisions, the exchange should fully consider its scientific nature, rationality, and rigor.

2. correctly understand the relationship between physical delivery and hedging. The important feature of hedging is that it deals in the same variety and quantity but in the opposite direction in the spot and futures markets. hedging operations do not necessarily require physical delivery. The vicious speculation of accumulation and price dumping is the easiest to put on the Legal coat of hedging. In this regard, the exchange should adjust the quantity of physical deliveries through reasonable trading systems and economic means.

3. market players are not selfish or profitable because of misjudgment. In the r708 contract, the main responsibilities of the bears are backed by sufficient spot natural rubber resources and a series of preferential policies for physical delivery. However, the failure is due to insufficient funds, and eventually fall into a passive situation. The Bulls in the market think that the money is more than the goods, and the trend is not to spare people, rather than to leave the empty side to the dead, the mistake is to forget the supervision power of the futures market.

4. futures transactions are open, fair, and fair transactions. However, when the market suffers from a fight in the middle of the market, Chinese merchants have adopted unreasonable supervision methods. Although agreement liquidation or mandatory liquidation can solve the problem for a while, it eventually causes irreparable losses. R708 contract multi-party delivery default is the result of the negotiation breakdown. Agreement liquidation and forced liquidation play a role in softening the trading rules and are a manifestation of irregular futures market conditions. They not only cannot fundamentally solve problems in the market, in addition, it is easy to induce other non-transparent dark transactions.

5. the unreasonable customer structure in the market is often one of the main reasons that leads to the extreme market trend. The size of the market's main positions is the main factor that determines the development trend of the market. If the exchange can control the flow of market funds and the ratio of the period-long value holders to speculators, the development of the market will start to run in the fundamental direction. For example, the sound operation of rubber markets in Singapore and Tokyo is successful because of the reasonable structure of the market investor group. (Wang Jiangang)