Development and Cooperation of Futures Market under “One Belt and One Road Strategy”

• Good afternoon ladies and gentlemen.
  
• It is my pleasure to be here today at the 12th Shanghai Derivatives Market Forum (SDMF), jointly hosted by the Shanghai Futures Exchange, Zhengzhou Commodity Exchange, Dalian Commodity Exchange, and China Financial Futures Exchange, with the support of China Futures Market Monitoring Center and China Futures Association.

• I am William Knottenbelt - Senior Managing Director, International, for CME Group – responsible for the Group’s business in Europe, Middle East, Africa, Asia and Latin America.

• All of us in this room would have undoubtedly witnessed that over the past decade, the epicenter of global economic growth and activity has been shifting from the developed nations to the emerging economies.

• When Chinese President Xi Jinping visited Central Asia and Southeast Asia in September and October of 2013, he raised the initiative of jointly building the Silk Road Economic Belt and the 21st Century Maritime Silk Road, subsequently referred to the Belt and Road initiative, which have attracted close attention from all over the world.

• Through the Belt and Road initiative, the Chinese government has signaled its intent to promote the implementation of this Initiative, instill vigour and vitality into the ancient Silk Road, connect Asian, European and African countries more closely and promote mutually beneficial cooperation to a new high and in new forms.

• Economic growth in emerging markets such as China has been driven by the fundamental productivity of the nation’s vast population

• China grew at a 10% annual real GDP clip for almost thirty years on the back of massive spending on infrastructure, modernizing at a pace never seen before.  The fruits of success, however, mean that additional infrastructure spending has hit the wall of diminishing returns.  This means that the old policy tools will not pack the punch they once did.

• However, the economists at CME Group do not anticipate anything like a recession in China.  The PBOC has been easing policy by reducing its reserve requirement ratio for banks and cutting interest rates. 

• In this environment, the Chinese government has also signaled that it will accelerate the liberalization of its capital account and financial markets.

• This promises to further transform Chinese as well as global markets, and enable Chinese market participants to invest in a range of overseas financial assets.

• By allowing the domestic market to have greater access to foreign capital, they are on course to becoming “mainstream” players in the international markets.

• At the same time, the range of activities conducted in RMB is rapidly expanding beyond trade settlement.  And to further reform the markets, China is also preparing to liberalize domestic interest rates, and to introduce more commercially driven lending.

• As we can all see, the reforms that China has set forth are gradually taking shape.  One clear example is the expansion of the Renminbi Qualified Foreign Institutional Investor (RQFII) Program.  China has already made significant strides to bring its currency to the world.  In a little over two to three years, the offshore RMB market has expanded from Hong Kong to Singapore, Taiwan, London and New York.

• At the same time, China will also double the quota of the QFII program to $150 billion, as Beijing widens channels for foreign investors to buy mainland stocks, bonds and money market instruments.

• And since the implementation of the Shanghai Free Trade Zone to facilitate cross-border commodity and capital flows, China has formally approved plans for three more free trade zones in a trial program intended to pave the way for liberalization of the country’s financial sector.

• Chinese exchanges have also stepped up to the plate, and in the past few months, there have been several exciting developments in the commodities space.

• Shanghai Futures Exchange first launched gold and silver contracts for night trading in July 2013, and since then, up till the end of last year, we have seen a total of 23 futures contracts launched by various Chinese exchanges for night trading sessions. This overlap between the Chinese domestic derivatives market and global derivatives markets, have created more arbitrage opportunities, and their price linkages are now much stronger than ever.

• In March this year, the Shanghai Futures Exchange (SHFE) listed futures contracts for tin and nickel, and we have seen healthy volumes and open interest in these products.

• And with SHFE’s unveiling of the International Energy Exchange (INE) to handle energy futures trading within the Shanghai Free Trade Zone, as well as other products including natural gas and petrochemicals in the future, one thing is for certain:- The creation of the INE is a major milestone in the development of China’s futures markets.  At the same time, having this new entity located within the FTZ will definitely ease concerns of potential foreign participants regarding currency convertibility of yuan-denominated futures contracts.

• We are entering into a new era as China opens up, cautiously but surely.  The potential of the investment opportunities that China presents is enormous, and the world is watching.

• As China continues to liberalize, CME Group is well-positioned to be China’s partner in its drive towards globalization and liberalization.

• As you might know, CME Group is the world’s leading and most diverse derivatives marketplace – offering hedging and risk management products on agricultural commodities, foreign currencies, government debt, short term interest rates, stock indexes, energy, metals and a wide array of other instruments. 

• Our products are routinely accessed by institutional, corporate and private investors around the globe to manage risks in today’s uncertain global economy.

• CME Group handles 3 billion trades worth approximately $1 quadrillion annually on average, and CME Clearing is the counterparty to every one of those 3 billion contracts – thereby facilitating the transfer of $1 quadrillion of risk.

• While CME Group is headquartered in Chicago, our business is truly global.  We have established regional headquarters in London and Singapore to service the growing global demand for our products and services.  

• We operate around a dozen telecommunications hubs globally, of which 5 are in Asia, and they allow our customers to connect to CME Globex, which is our electronic trading platform. 

• This shows that the products we have developed are regarded as applicable beyond the borders of the United States to serve developed and developing economies throughout the world.

• We have therefore entered into partnerships with exchanges around the world that help internationalize our partner exchanges’ products. This also provides their own domestic customers with much greater choices of counterparties and products. 

• In the past year alone, we have inked agreements with various Chinese exchanges.

• In September 2014, we signed a market data provision agreement with China Financial Futures Exchange, where CME Group will license and distribute CFFEX market data outside of mainland China, allowing us to play a key role in the internationalization of their benchmark products, as China continues on its path of financial market liberalization.

• In that same month, we also signed a Memorandum of Understanding with Shanghai Clearing House, to explore opportunities to jointly develop products and services that will benefit market users globally, as well as to cooperate in the areas of risk management and market research.

• In November 2014, CME Group and Shanghai Gold Exchange (SGE) signed a MOU to explore opportunities in the areas of new product development, joint marketing and customer educational activities, as well as to cooperate in the areas of risk management, market research and information sharing.

• Our involvement in China doesn’t end there. 

• CME Group also works very closely with Chinese regulators and various local institutions on areas of education, innovation and efficient market operations, and in doing so we are undoubtedly participating in China’s growth.

• On the investor education front, we are committed to expanding our educational outreach to Chinese market participants.  We recently renewed a MOU to extend our partnership with China Futures Association, representing our commitment to expanding educational outreach to Chinese market participants.

• And just last month, we collaborated with Hexun – a leading financial news portal in China – to launch the Hexun-CME Group Online Futures Classroom – a Chinese language portal that integrates CME Group’s Chinese educational materials, ranging from daily market commentaries, webinars, research reports to videos. 

• This Online Futures Classroom allows Chinese investors to gain easier access to CME Group and foreign derivatives market information, and will go some way in meeting China’s diversified risk management and investment demand needs.

• On the products front, we have also launched various futures contracts to cater to the needs of Chinese market participants. 

• These include the deliverable CNH futures contract, the Iron Ore 58% Fe Low Alumina CFR China (TSI) futures contract, as well as the Gold Kilo futures contract – all aimed at meeting growing industry demands and serving the growing markets in Asia, specifically in China.

• Clearly, this is a period of tremendous change and opportunity for everyone involved, as China proceeds on its path of economic and financial reform, and as it opens up to the world.

• We at CME Group see ourselves as a long term partner to China, and with our 167-year history of serving the risk management needs of customers around the globe – we will continue to support the various developments in China’s derivatives markets.

• CME Group is in regular dialogues with the Chinese regulators and other market constituents – and to constantly innovate and further build an efficient marketplace.

• We engage in ongoing extensive and in-depth communication and cooperation with Chinese exchange partners, and we certainly look forward to building on the foundations that we have laid in China.

• We firmly believe that through facilitating the internationalization of Chinese exchanges, and working hand in hand with Chinese regulators, only then will we be able to jointly establish an ecosystem that is beneficial to all parties, and which best serves the needs of the customer.

• With that, I would like to thank you all for being here today, and I wish the event organizers a very successful conference.

• Thank you.