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Futures Daily: Should After-hours Trading Time be Unified?

 

By Li Yicheng
 
“If the Fed were to announce the resolution of the meeting on interest rates tonight, would you trade at 2:00 am?”
 
“Absolutely!” In the face of the question, Li Zhitao, a futures investor, gave a very definite answer. As for some market participants’ suggestion to unify and make the trading time of the after-hours products as short as possible, Li disagreed.
 
Focusing on the trading of precious metals, Li certainly knew what impact the Federal Reserve meeting on interest rates would have on the fluctuations in prices of precious metals.
 
The Fed convenes eight meetings on interest rates each year, most of which are held at 2:00 Beijing time (3:00 Beijing time in winter). Statistics show that in 15 minutes after that time point, the dominant contracts of gold and silver record fluctuations of more than 1% on average. At present the after-hours trading of gold and silver on the Shanghai Futures Exchange (SHFE) has covered the period, which gives those like Li a good reason to stay that long.
 
It is the demand of these investors that makes the after-hours trading sessions introduced by various domestic commodity futures exchanges more and more recognized.
 
The SHFE, for example, in addition to gold and silver, has currently introduced copper, aluminum, zinc, lead, rebar, hot rolled coils, natural rubber, bitumen, nickel and tin into the after-hours trading, with the major products of the SHFE covered.
 
Data show that the trading volume of the SHFE during the continuous trading accounts for 28.21% of the total, with the precious metals and non-ferrous metals products highlighted. In particular, the trading volume of the precious metals during the continuous trading accounts for more than 60% of the total, with that of non-ferrous metals products taking more than 30% of the total. The trading volumes of the rebar and natural rubber newly added to the after-hours trading during the continuous trading account for 29.63% and 20.69% of the totals respectively.
 
“The launch of the after-hours trading can not only meet the demand of the clients for avoiding market risks, but also contribute to the efforts of the SHFE in developing into a pricing center for bulk commodities,” said Wu Zheng, deputy general manager of Dalu Futures.
 
After communicating with clients, Wu found that many professional investors, particularly the clients involved in the trading of international industrial futures products, have long been avoiding the risks of overseas trading hours through various channels. The introduction of the after-hours trading has met their demand for avoiding the risks. “For them, the financial operations are more convenient through trading on domestic markets,” said Wu.
 
In fact, after the introduction of the after-hours trading, some investors who used to trade abroad have returned to the domestic market.
 
With regard to whether the trading time of the after-hours traded products should be unified, Wu believed that as different traded products react to economic data in different ways, it should be treated differently. For example, agricultural products are more affected by planting, growth and harvest conditions, with general economic data unlikely to have a direct impact on them, while the cases are much more complex for industrial products.
 
“The industrial products such as iron and steel products that have little dependence on foreign factors are mainly affected by domestic data, so the after-hours trading time may be relatively short, but the precious metals and other products that are sensitive to international data should see the time of after-hours trading extended,” said Jiang Mingde, deputy general manager of Hengtai Futures, expressing a similar view.
 
It is just the original purpose for the launch of the after-hours trading in domestic futures markets. Only when the trading sessions cover the main trading hours of the relevant products on international markets can the linkage of the markets at home and abroad be closer.
 
Data show that the average proportion of the closing price of the dominant contract of the gold futures on the SHFE during the continuous trading session to the price of that on COMEX at the same time is 6.21, with the fluctuation range from 6.07 to 6.47, and average proportion for the silver is 6.28. It indicates that the prices of both the products show significant correlation.
 
An SHFE official said that the SHFE’s schedule for the continuous trading has taken the practices of major international markets into consideration. For example, the schedules for the continuous trading of relevant products on the SHFE have covered the floor trading hours of LME and the floor trading hours of the gold and silver futures products of COMEX. It has provided the investors participating in cross-market arbitrage with more complete market conditions, and laid the foundation for further improving the internationalization of relevant products.
 
At present, the continuous trading hours of the gold and silver futures in China have covered most of the international trading sessions, but there is still the problem that the international markets cannot be well connected at some time. For example, at about 20:30 when the international markets release important data, the trading would show the gaps, affecting the investors’ confidence in holding positions, and many investors call for extending the continuous trading time as soon as possible.
 

In this regard, an SHFE official said that the SHFE is, in accordance with established plans, further optimizing the continuous trading hours, and on the basis of summing up the successful experience in previous continuous trading, discussing on making the market opening earlier, so as to improve the mechanism of linkage with international markets and give better play to the role of the futures market in serving the real economy.

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