China launched its first ever exchange-traded commodity options product on Friday as the commodity exchange in the city of Dalian began offering options for soymeal, a chief ingredient in tofu — part of a drive by Beijing to promote more complex agricultural trading instruments.
In consideration for two decades, the options — which give the right but not the obligation to buy a financial contract in the future — allow greater hedging flexibility for Chinese corporations. A longer established market in soymeal futures is already worth $7bn annually, making it the country’s largest agricultural market.
“This morning’s launch of soymeal options, and the upcoming launch of sugar options, will help with the process of price discovery and will provide agricultural companies with more flexible risk management tools,” Fang Xinghai, vice chairman of the China Securities Regulatory Commission said at a launch ceremony.
Beijing has been cautious about new commodity-related financial products for fear that speculators could drive up prices and increase volatility. Fang cautioned that “The options market must ensure progress with stability…and not simply pursue trading volume as a goal,” before banging a gong alongside Dalian’s mayor to launch trading.
The head of the exchange Li Zhengqiang told the Financial Times that corn options are also being researched. Beijing regulators have hinted at opening China’s long-closed futures markets to foreign investors, and Li added that the exchange is “actively pushing” for the opening trade in iron ore futures to overseas capital, without providing a timetable.