In accordance with the work requirements of the Futures Supervision Department of the China Securities Regulatory Commission on the development of new varieties of futures, Zhengzhou Commodity Exchange (hereinafter referred to as “Zhengshang Institute”) conducted in-depth research on China's cotton textile industry and carefully analyzed cotton yarn production, consumption, trade and transportation. On the basis of extensive consultation with cotton yarn producers, trading companies, consumer companies, industry associations, quality inspection agencies and futures companies, the design of cotton yarn futures contracts was completed. The cotton yarn futures contract design is close to the spot market reality, following the operating rules of the futures market, and keeping the existing relevant system rules as consistent as possible, and has been recognized by the relevant spot enterprises and futures market investment institutions.

First, cotton yarn futures contract design principles

(1) Close to the actual spot market, to facilitate the participation of relevant entities

The premise of the function of the futures market is that the design of the futures contract and the rules and regulations are close to the actual spot market, which is convenient for the participation of the spot enterprises and the development trend of the industry. Zhengshang Institute conducted in-depth research on cotton yarn production, trade and consumer enterprises, carefully studied the trade habits and flows of the cotton yarn spot market, and extensively consulted the opinions and suggestions of the China Cotton Textile Industry Association, relevant quality inspection agencies and futures companies. On this basis, through multi-party argumentation, the futures contract and rule system design conforming to the characteristics of cotton yarns has been completed, and the actual spot market conditions are as close as possible to the transaction target, delivery method, delivery method, delivery warehouse layout, etc., to ensure the transaction and delivery target. Accurate, clear and convenient for relevant subjects to participate.

(2) Following the law of the operation of the futures market, taking into account market development and risk control

While being close to the spot market, cotton yarn futures contracts and rules and systems design must consider the needs of market development, attract more investors to participate, and take into account risk control to ensure the smooth operation of the futures market. In terms of trading units, minimum price changes, daily price fluctuation limits, minimum trading margin, benchmark delivery, delivery design, etc., Zhengshang has fully considered the investor structure and trading habits of the futures market, facilitating the participation of investment entities. From the perspective of the market, the design of various clauses has been completed, laying the foundation for the effective functioning of the futures market and promoting the sound operation of cotton yarn futures trading.

(3) Consistent with cotton futures, facilitating cross-species hedging and arbitrage

Cotton and cotton yarn belong to the raw material and raw material processing links in the cotton textile industry chain, and have a close upstream-downstream price linkage relationship. The futures market has strong demand for cross-species hedging and arbitrage. To this end, in the design of trading units, minimum price changes and other indicators, the relevant design of cotton yarn futures contracts is consistent with cotton futures, which not only creates conditions for the realization of hedging and arbitrage between cotton yarn futures and cotton futures, but also improves the efficiency of investment funds. It is easy for investors to remember and increase market participation and enthusiasm.

Second, the cotton yarn futures contract design details

(1) Trading unit: 5 tons / hand (public weight)

In accordance with the principle that cotton yarn futures are close to the spot market, taking into account market development and risk control, and promoting the function of the market, taking into account the financial strength of cotton textile enterprises and the design of trading units of existing futures varieties, Zhengshang will set the cotton yarn futures trading unit as 5 tons / hand. The reasons are as follows:

First, it is consistent with cotton futures, which is convenient for cross-species arbitrage transactions. Cotton and cotton yarn industry are inseparable and the price is highly correlated. The cotton yarn futures trading unit is set to be consistent with cotton futures, which is convenient for investors to carry out cross-species arbitrage transactions between cotton yarn futures and cotton futures, improve the efficiency of capital use, and take into account investor trading habits.

Second, the contract value is moderate and easy for investors to participate. According to the average price of 32 carded cotton yarns published by the China Cotton Textile Industry Association in the past two years, the average price of cotton yarn futures contracts is about 105,000 yuan. In China's existing futures variety system, it is lower than natural natural rubber and thermal coal, higher than cotton, sugar and other varieties. The contract value is moderate, which is conducive to attracting investors to participate and lay a foundation for the function of futures market.

(2) Quotation unit: RMB/ton

The unit price of RMB (RMB)/ton is the same as that used in the spot trade of cotton yarn, and is consistent with other major futures varieties in China.

(3) Minimum change price: 5 yuan / ton

First, the moderate price fluctuations are conducive to the formation of continuous prices and improve the accuracy of price discovery. In the cotton yarn spot market, the price change is generally 50 yuan / ton, 100 yuan / ton, which is related to the intermittent, low frequency and other characteristics of spot trade price changes. The trading in the futures market is continuous and high-frequency. The quotation unit is too large, which is not conducive to the completion of the transaction between the buyer and the seller. It is not conducive to the formation of continuous and effective prices, but also brings risks to both parties. According to the operating characteristics of the futures market, Zheng Shang Institute has set the price unit of cotton yarn futures at RMB 5/ton for the higher value of cotton yarn unit, which helps to improve the price discovery function of the futures market and make the price discovery more accurate and continuous. At the same time, it also fully considers the investor's capital income, which helps to improve market liquidity and reduce trading risks.

Second, consistent with the minimum price of cotton futures, it is one of the necessary conditions for the domestic futures market to achieve cross-species arbitrage transactions between cotton and cotton yarns, which will help improve the efficiency of investment funds.

Third, it is consistent with the minimum price of the domestic cotton yarn spot market price index (such as the price index issued by the China Cotton Textile Industry Association), close to the spot trading habits, which is conducive to promoting the price discovery function of the futures market and attracting spot enterprises to participate in the transaction. .

(4) Daily price fluctuation limit and minimum trading margin: a combination of ±4% and 5%

The ups and downs system and the margin system are effective means of risk control in the futures market. The scientific design of these two systems is an important guarantee for the smooth operation of the market. According to the fluctuation of the spot price of cotton yarn, the daily price fluctuation limit and the minimum trading margin of the cotton yarn contract are set to ±4% and 5% respectively. The reasons are as follows:

Table 1 shows the daily fluctuations of China's 32 carded cotton yarn price indices from July 2010 to June 2017

First, the daily price fluctuation limit of ±4% can cover 99.9% of price fluctuations, and the market risk is controllable. Through the statistical analysis of the price index of China's 32 carded cotton yarns from July 2010 to June 2017 issued by the China Cotton Textile Industry Association, according to the daily price fluctuations = [the current price - the previous day price) / before One-day price] × 100% calculation, ± 4% of the price limit can cover 99.9% of the cotton yarn sample data (see Table 1), the market risk is controllable. In addition, in the event of an abnormal situation, the exchange can adjust the daily price fluctuation limit according to regulations to control the trading risk.

Second, a 5% trading margin is sufficient to guard against market risks. According to the above data analysis, the spot price fluctuation of 32 carded cotton yarns in China is generally within 100 yuan/ton, and in special cases is about 500 yuan/ton. Based on the 5% minimum trading margin ratio, the deposit of 1050 yuan / ton can fully cover its daily fluctuations. In actual operation, the futures company will also add 2-3 percentage points on the basis of the margin requirement of the exchange, and the market risk can be controlled.

Third, the daily price fluctuation limit of ±4% and 5% and the minimum trading margin combination are consistent with cotton futures, which facilitates the arbitrage trading between cotton and cotton yarn varieties.

(5) Contract delivery month: January to December

First, it is consistent with the characteristics of continuous production of the cotton yarn spot market. As an industrial product, cotton yarn has the characteristics of continuous production. Its production, consumption, trade and circulation have no obvious seasonality, and dealers generally hold certain stocks. Relevant enterprises have hedging demand in all months of the year. Therefore, designing all months as the delivery month can provide related companies with a hedging platform that is more in line with the spot demand.

Second, it is consistent with the practice of using industrial products in the domestic futures market for consecutive months. The domestic futures market designs the industrial product delivery month as a continuous month, such as methanol, glass, PTA, and thermal coal. In the delivery month design, cotton yarn futures are consistent with other industrial product designs, so that investors can understand the memory.

(6) Last trading day: the 10th trading day of the contract delivery month

Cotton yarns are delivered using standard warehouse receipts. The 10th trading day of the contract delivery month is the last trading day, which is consistent with cotton, sugar, PTA, rapeseed meal, methanol, glass and other varieties, so that investors can understand the memory.

(7) Final delivery date: the 12th trading day of the contract delivery month

The cotton yarn delivery method is physical delivery, using the three-day delivery method, and the final delivery date is the 12th trading day of the contract delivery month.

(8) Delivery grade

1. Benchmark delivery product: 18.5tex (32 inch) carded cotton plain color single yarn (ring spinning) conforming to Zheng Shang Institute's cotton yarn futures delivery quality standard

Taking 32 carded cotton yarns as the benchmark for cotton yarn futures is in line with the development status of China's cotton textile industry: First, the price of 32 carded cotton yarns is the pricing benchmark of various specifications in the industry, which is conducive to better display the price of futures market. Features. Second, 32 carded cotton yarns meet the product structure of the majority of small and medium-sized cotton textile enterprises in the industry, which is conducive to better play the hedging function of the futures market and enhance the ability of the futures market to serve the cotton textile industry. Third, the 32 carded cotton yarns have the largest market share in spot market, which can provide sufficient physical delivery volume to help prevent delivery risks. In 2016, China's 32 carded cotton yarn production was 1.16 million tons, accounting for 18.6% of the total cotton yarn production; according to the 80% of the delivery quality standards, the available delivery volume was about 930,000 tons, valued at 19.5 billion yuan. Fourth, the main cotton blending component of 32 carded cotton yarns is consistent with the cotton futures benchmark delivery, which is conducive to enhancing the convenience of hedging between cotton yarn futures and cotton futures, and improving the hedging efficiency of cotton textile enterprises.

2. Delivery quality indicators of benchmark deliverables:

The design principles for the quality standards for cotton yarn futures delivery include the following two aspects:

On the one hand, it not only meets the trade demand of the spot market, but also meets the delivery requirements of the futures market. The quality standard design of cotton yarn futures delivery is higher than that of the national standard, and it can be closer to the superior, covering more than 80% of the 32 carded cotton yarn market share in China, in line with the spot market trade demand. In addition, according to the calculation of China's 32 carded cotton yarn production of 1.16 million tons and the average price index of 21,000 yuan/ton in 2016, cotton yarn futures can provide physical delivery of 930,000 tons and a value of about 19.5 billion yuan, which can meet the delivery demand of the futures market.

On the other hand, it not only represents the current development of the spot market, but also enhances the scientific nature of futures delivery standards. The design of cotton yarn futures delivery quality standards is mainly based on the "National Standard Cotton Color Yarn of the People's Republic of China" (GB/T398-2008). Among them, the number of inner cotton agglomerates in 1 gram and the total number of impurities in the inner neps of 1 gram are sensory test indicators, which are prone to errors. In combination with the actual trade situation, the cotton yarn futures delivery standard design replaces the sensory inspection index with the machine inspection index, that is, the -50% kilometer detail of the Uster Bulletin, the +50% kilometer thick section and the +200% kilometer nep Replace it. This not only conforms to the quality inspection practice of the spot market, but also represents the current development of the market, and can accurately reflect the cotton knots and impurities contained in the cotton yarn, and improve the objectivity and scientificity of futures delivery standards. The delivery quality standard has been unanimously recognized by industry associations and production, consumption and trading companies to ensure smooth operation of cotton yarn futures after listing.

3. Substitute and premium: The foreign fiber content of cotton yarn futures meets the relevant regulations of Zhengshang Institute, and can be replaced by water

Taking the foreign fiber content as a substitute for cotton yarn futures and setting a reasonable alternative delivery range and discount rate can not only ensure the usability of downstream enterprises after receiving the goods, but also ensure that the futures price signals are clear. Heterofibers (hereinafter referred to as "heterofibers") refer to chemical fibers, hair, plastic films, etc. Because their properties are different from those of cotton fibers, they will appear on the fabric after weaving and dyeing, which has a great influence on the quality of fabric printing and dyeing. In actual trade, depending on the demand for use, downstream enterprises have different requirements for the content of cotton yarn, and their procurement costs are also different. For example, weaving high-end bleached grey fabrics generally requires that the foreign fiber content of cotton yarns does not exceed 40/20kg, that is, the cotton used for the production of cotton yarns is imported cotton and Xinjiang cotton, and the purchase cost is 500-1000 yuan/ton; the middle end of weaving For dark cloth or denim, it is generally required that the content of cotton yarn is controllable, that is, the cotton used for the production of cotton yarn is mostly Xinjiang cotton and real cotton; while the low-end fabric is woven, there is no requirement for cotton yarn, and its production Cotton can be used for low-quality real estate cotton or cotton, the purchase price is appropriately lowered, and many can be lowered by about 1,000 yuan / ton. Based on the above spot characteristics, the foreign fiber content is used as a substitute for cotton yarn futures, and a reasonable alternative delivery range and discount rate are set, which can avoid the high-fibre content and the cotton yarn that is extremely harmful to the cloth surface flowing into the futures market. Thereby ensuring the usability of the downstream enterprises after receiving the goods, it can also strengthen the consistency of the quality of futures trading and delivery cotton yarns, and ensure that the futures price signals are clear.

4. The delivery product has a single specification, only 32 carded cotton yarns.

Cotton yarn futures set a single specification delivery product to improve the certainty of the delivery target. Cotton yarn has the characteristics of “many product specifications and complicated production process”. Different product specifications, cotton yarn thickness is also different, such as 32 cotton yarns are thicker than 40 cotton yarns; different production processes, cotton yarn quality is also different, such as combed cotton yarn in the carded cotton yarn production process based on the addition of the combing process, removed More impurities and defects, with fewer defects, low impurity, high fiber uniformity and so on. The difference in product specifications and production process makes the cotton yarn have certain differences in the uniformity, strength, twist, and impurities of the strip, which in turn causes different performances and fabric styles, such as 40 combed cotton yarns in softness and resistance. Abrasiveness, drapability, pilling and other aspects are slightly better than 32 carded cotton yarns. This also determines the characteristics of cotton yarn consumption, which has “strong personalization demand and weaker use substitution”. For example, 32 carded cotton yarns are mostly used for weaving tooling, casual fabrics, high-grade denim, etc.; 40 combed cotton yarns are mostly used for weaving underwear, shirts, bedding, high-end apparel fabrics, etc. Based on the above attribute characteristics, the cotton yarn futures set a single specification delivery product to ensure the consistency of the receiving specifications of the downstream enterprises, that is, the warehouse receipts obtained through the centralized delivery of the futures market are 32 carded cotton yarns, which strengthen the transaction and delivery targets. Certainty, and thus ensure that the futures price signal is clear.

(9) Delivery method: physical delivery

Physical delivery is the "bridge" and "link" between the futures market and the spot market. The physical delivery system can ensure that the cotton yarn futures and the spot price trend are consistent, which is conducive to the function of the futures market.

(10) Transaction code: CY

The cotton yarn is English "cotton yarn". According to the principle of simple and easy to remember, the transaction code is set to "CY".

(11) Other terms

In addition to the above terms, terms such as trading hours, listing exchanges, etc. are determined by convention.