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DCE RBD Palm Olein Futures Delivery Requires Participants to Receive or Issue VAT Invoices

Date:26 November 2020
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Interpretation of Relevant Rules Concerning Opening DCE’s RBD Palm Olein Futures to Overseas Investors

Since identified as a specified domestic futures product in China, the RBD palm olein futures of DCE has attracted close attention from domestic and overseas markets. Such issues have been heatedly discussed in the market as what kind of clients can participate in the trading and delivery of RBD palm olein futures of DCE, and whether overseas brokers can provide overseas investors with the brokerage business for trading the RBD palm olein futures of DCE. To clearly explain the issues, the responsible person from DCE offers an interpretation of the relevant rules concerning opening RBD palm olein futures to overseas investors.

It is learned that the trading, settlement, and risk control of RBD palm olein futures after opening to overseas investors will be performed in the way iron ore and other specified futures products are done currently. In terms of delivery, the current provisions for individual client’s positions in the delivery month will not be changed, and it is newly added that entity clients that cannot receive or issue VAT invoices are prohibited from delivery. The person in charge explains that, if an entity client cannot issue or receive a VAT invoice, the VAT deduction chain will break, increasing the delivery cost of the counterparty. It is to effectively protect the rights and interests of investors and safeguard the fairness and justice of the market that DCE has added the provision.

To clarify the qualification for clients to participate in the delivery, DCE will verify the qualification of domestic and overseas entity clients, an additional provision that will come into effect from the implementation of the rules. To be specific, entity clients that have participated in the delivery of RBD palm olein futures in and before December 2020 can directly participate in the delivery without submitting qualification certificates. If the entity clients that have not participated in the delivery before have the need for delivery, they can provide legal and valid qualification certificates to DCE through the member before 14:30 of the handover day for One-Off Delivery, or when applying for standard warehouse receipt EFP. Entity clients failing to submit the qualification certificates within the prescribed time and are matched during One-Off Delivery  shall be deemed not qualified to receive or issue VAT invoices, and relevant provisions of the Measures for Delivery Management of Dalian Commodity Exchange shall apply. In addition, to ensure that clients with delivery needs can submit delivery qualification certificates in time, DCE will repeatedly inform clients that do not have delivery qualification before the delivery month and the last trading day through the members.

For entity clients in violation of the above-mentioned provisions, DCE has corresponding measures in place. It is stipulated that if the entity clients of the RBD palm olein futures contracts that cannot receive or issue VAT invoices are matched during One-off Delivery, the Exchange shall impose a fine of twenty percent (20%) of the contract value calculated at the delivery settlement price against such entity client after the market close on the handover day and such fine shall be paid to the counterparty. If both of the matched parties are clients prohibited from delivery, the Exchange shall impose a fine of twenty percent (20%) of the contract value calculated at the delivery settlement price against both parties and such fine will not be paid to each other.

After opening the RBD palm olein futures to overseas investors, overseas brokers can provide overseas investors with the brokerage business of trading the RBD palm olein futures of DCE. But they should also comply with the relevant rules. Therefore, DCE has amended the detailed rules of RBD palm olein futures accordingly, stipulating that overseas brokers, as market participants, shall comply with the Detailed Rules of RBD Palm Olein Futures of Dalian Commodity Exchange.

According to market participants, RBD palm olein futures is one of the agricultural products of DCE that fully perform the functions. The industrial enterprises, institutional investors and other participants of palm olein futures market are relatively mature. And the trading, clearing, risk control, delivery and other rules and regulations are complete. By amending the rules, DCE is better institutionally prepared to open its futures to overseas investors, while laying down a solid institutional foundation for opening up to the overseas markets.

Disclaimer: This English translation may be used for reference only. In cases there is any discrepancy between the English version and the original Chinese version, the original Chinese version shall prevail. Dalian Commodity Exchange may change or update this English translation without any prior notice and shall accept no responsibility or liability for damage or loss caused by any error, inaccuracy, misunderstanding, or change with regard to this English translation.

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