China’s securities regulator has given the green light to launch corn options on the Dalian Commodity Exchange (DCE) and cotton options on the Zhengzhou Commodity Exchange (ZCE), as part of the government’s drive to promote more complex agricultural trading instruments in the world’s biggest commodity market.
The two exchanges made the announcement on the regulator's website on Monday. They did not reveal when they are targeting rollout of the products.
Options, which give the holder the right to buy or sell a commodity at a particular strike price, allow greater hedging flexibility for Chinese processors and traders.
The new contracts will help the industries hedge against price swings and promote stable operations, building on the corn and cotton futures already traded for several years.
“This will... provide more abundant and flexible risk management tools and trading strategies for upstream and downstream entities in corn and related industries,” the DCE said in an emailed statement.
The ZCE said in a statement that options will help medium- and smaller-sized traders and processors of cotton, which face high costs and have low capabilities for handling risk.
China, the world’s second-largest producer and consumer of corn, will continue to reduce corn stockpiles this year as part of agriculture reforms that also include seeking self-sufficiency in rice and wheat.
China launched soymeal options on March 31, 2017, the first ever exchange-traded commodity options product.
