Commodities

• Commodities are one of the three core pillars of HKEX’s multi-asset strategy
• The launch of commodities products is to promote commodity market in the Asian time zone to reflect Asian supply and demand
• It will give customers of HKEX exposure to the commodities sector

• It facilitates hedging and arbitrage in the Asian time zone
• It gives exposure to a network of over 30 HKFE participants with Mainland backgrounds and their ability to attract Mainland commodity investors
• Exposure to liquidity from global financial market players who trade commodities

• Physical end users and sector participants looking to hedge their market exposure
• Cross-market arbitrageurs
• Retail and Financial investors with an appetite to invest in the commodities sector

• Gold Futures are futures contracts based on the precious metal market to help build Hong Kong into a mature, comprehensive capital market that can serve as a risk management centre for both Mainland investors and international participants.
• HKEX Gold Futures are designed to help gold end users, like refiners, fabricators, and jewelers, hedge gold price risk, as well as for banks, fund managers and traders to invest in the precious metals market. HKEX's Gold Futures underlying is a 1 kilogram gold bar of at least 0.9999 fineness.
• HKEX Gold Futures are quoted in USD and off shore RMB (CNH), and are the first physically delivered commodity futures contract in Hong Kong. The final settlement price is the volume weighted average price of all trades in the expiring Contract Month during the last thirty minutes of trading on the Last Trading Day.
• For more information, investors can refer to "Gold Futures" under"Products - Listed Derivatives - Commodities"on the HKEX website.

• Iron Ore Futures are futures contracts based on seaborne iron ore that is the raw material for steel making. HKEX’s iron ore futures underlying is the seaborne TSI index 62% Fe CFR China, which is a medium-high grade iron ore.

• HKEX Iron Ore Futures contracts are designed to provide a way for financial and physical investors to hedge their iron ore price exposure and invest in the commodity.

• HKEX Iron Ore Futures contract is quoted in USD, cash settled and the final settlement price is based on the arithmetic average of all TSI index 62% Fe CFR China index values published in that contract month. The last trading day is the last Hong Kong business day of a calendar month that is not a Singapore public holiday. Both monthly and quarterly contracts are provided in HKEX to enhance exposure.

• For more information, investors can refer to "Gold Futures" under"Products - Listed Derivatives - Commodities"on the HKEX website.

• London Metal Mini Futures are based on six base metals (Copper, Aluminum, Zinc, Nickel, Tin and Lead) on the London Metal Exchange, the world premier industrial metals trading exchange.

• HKEX London Metal Mini Futures offers Asia time zone trading facilities and are designed to give the market another channel to hedge against adverse price movements. HKEX aims to develop commodities trading in Hong Kong in cooperation with LME, to bring together both the physical and financial communities.

• HKEX London Metal Mini Futures are quoted in USD and off-shore RMB (CNH), cash settled and are a smaller size than the LME contracts. The final settlement price is based on the LME’s Official Settlement Price which is established during the 2^nd Ring Close

• For more information, investors can refer to "London Metal Mini Futures" under "Products & Services - Derivatives Products" on the HKEX website.

• HKATS’s Block Trade Facility allows participants to execute a large-sized order with price and execution certainty; and reduction of counter-party risk through central clearing.
• The minimum block trade volume threshold for commodities are as follows:
• London Metal Mini Futures (USD and CNH): 50 contracts
• Gold Futures (USD and CNH): 30 contracts
• Iron Ore Futures: 50 contracts
• Criteria for Block Trades, Information Dissemination, Clearing Arrangements and Market Surveillance can be found

  https://www.hkex.com.hk/Services/Trading/Derivatives/Overview/Trading-Mechanism/Block-Trade-Facility?sc_lang=en

• TMA is Hong Kong’s Treasury Markets Association
• The pricing is the benchmark of the spot USD/CNH rates in Hong Kong published at 11:15 am each business day
• The pricing is determined by averaging the middle quotes after excluding the highest 3 quotes and lowest 3 quotes from the 18 contributing banks (subject to changes by TMA from time to time)

For HKEX Gold Futures contracts entering the spot month, the Participants are required to have internal controls to manage their own /clients’ positions and such control should aim to mitigate risks of carrying excessive positions.

Non-Delivery Participants (“NDPs”) should ensure no open positions by end of LTD-1, no trading or accepting any transfer of any spot month contracts after the T Session on LTD-1 (except for closing existing open positions). A 0.25% fine of the Final Settlement Price multiplied by the Contract Size will be imposed and warning letter might be issued for NDPs breaching position restrictions on LTD-1 and LTD.

Delivery Participants (“DP”) should ensure Acceptance/Delivery Notice is submitted to HKCC by LTD 17:00.

The Seller CP needs to confirm the delivery details with HKCC by LTD+1 10:00 and ensure the gold is ready for earmark by LTD+1 noon. For any failure to receive the full amount of gold, Buyer CP should notify HKCC by LTD+2 14:30.

From morning of LTD-2 onwards, a physical delivery charge (10% of contract value) will be applied to any open positions held by the end of LTD-3 as additional margin, serving as early alert for all CPs to close /roll over positions should there be no intention of delivery.

To become DPs, who have physical delivery capability for final settlement of USD Gold Futures Contracts, participants should

1. Have USD settlement capability,
2. Set up physical settlement arrangement with each of the Approved Depositories i.e. Open a depository account with each of the Approved Depositories (i.e. Brink’s HK initially); or Line up Delivery Agreement with Delivery Agent i.e. Appoint another HKCC Participant who has depository accounts with all Approved Depositories as Delivery Agents.

To become NDPs, who do not have physical delivery capability for final settlement of Gold Futures Contracts, participants should

1. Have USD settlement capability,
2. Restrictions - subject to HKCC Rule 606A, NDP should not
   
   • Carry the spot month contracts by the end of LTD-1
   • Trade or accept any transfer of spot month contracts after T session on LTD-1 unless for the purpose of closing out existing open positions of the NDP

A physical delivery contract charge in the amount of approximately 10% of the contract value is imposed on all open spot month Gold Futures Contracts from the morning of the second business day prior to the Last Trading Day (i.e., LTD-2) until such contracts are closed out or settled, to mitigate the risk of physical delivery.

The physical delivery contract charges for Gold Futures are reviewed and updated by the Clearing House on a regular basis and are published in the Margin Tables - Margin Levels for Futures Contracts - Current.  For details on the margin calculation for Gold Futures, please refer to the PRiME Margining Guide.

Warning letters and fines will be issued to NDP who:

1. Maintain open positions by the end of LTD-1^[1];
2. Trade or accept any transfer of any spot month contracts after the T Session on LTD-1 (not for closing existing open positions); or
3. Maintain open positions by the end of LTD

^[1] After the System Input Cutoff time (i.e. 20:30) on LTD-1

No, the earmarking does not extend to the CP’s client depository account. Accordingly, the CP is not required to specify the end client’s individual depository account details for this purpose. The earmarking requirement is fulfilled at the CP level, and there is no obligation to look through to, or disclose, the underlying client account information.

HKCC’s matching process with Clearing Participants is designed based on below considerations:

1. In order to maximise the chances of physical delivery, DP will be pooled and matched amongst themselves first; the same applies for NDP.
2. If there is more than one Approved Depository, priority will be given to deliveries in the same depository for the convenience of DP.
3. For efficiency, short and long positions of the same quantity will be matched first.

For fairness, in case there are multiple positions of the same quantity, the positions will be matched on a random basis.

NDP is required to pay non-delivery charge (7% of the Reference Price multiplied by the Contract Size) to HKCC, and make Cash Compensation to the matched, performing CP including:

1. Price Differential with reference to Final Settlement Value and contract value of spot month contract on FSD and
2. 3% of contract value of spot month contract on FSD, where applicable

The matching process is based on DCASS accounts. Therefore, if the underlying clients’ positions are held in separate DCASS accounts, they will not be netted in the matching process. In such cases, long and short positions maintained for different clients will be treated independently, and the CP should follow the matching results from the clearing house for submission.

If the seller CP cannot fulfil delivery obligation, they will need to pay cash compensation (price differential on top of 3% of contract value of spot month contract on FSD compensation) to the buyer CP, and a 7% of the Reference Price multiplied by the Contract Size non-delivery charge to HKCC. The buyer CP may also follow up with the seller CP and seek arbitration with HKCC facilitating the process. Further details are available in HKCC Procedures 2A.3.3(a) and 2A.3.5(k).

The relevant forms (e.g. MF04, MF05, MF06) can be found under the Operations & Technical section of our webpage here.