Shanghai International Energy Exchange (INE), a subsidiary of Shanghai Futures Exchange (SHFE), published consultation papers on May 6 for the INE Crude Oil Options Contract Specifications, Options Trading Rules of the Shanghai International Energy Exchange, and revisions on related implementation rules, as reported by Caixin on May 7. Crude oil options are the first batch of option products in the INE and will be available for both domestic and overseas investors. The consultation will end on May 12, and the INE plans to conduct the mock trading test of crude oil options from May 10 to May 21.

According to INE’s consultation documents, crude oil options are American-style options, and the underlying assets are the counterpart futures. In 2018, the country issued crude oil futures in order to control the oil pricing and manage the fluctuation risks. The upcoming options is complementary to crude oil futures, which could further facilitate the risk management of the sector. Moreover, for companies and investors, the options are also tools to hedge the downside of COVID-19, which limits travel and causes a global reduction in oil demand.

The Chinese commodity options market started in 2017, with soybean meal options first launched on Dalian Commodity Exchange and sugar options then listed on Zhengzhou Commodity Exchange. Currently, the domestic commodity options market contains 18 types of products, 12 of which were introduced during 2020. The underlying assets of options contracts cover agriculture, chemical, ferrous, non-ferrous, precious metals, and other sectors. In 2020, the total volume of the Chinese Mainland’s commodity options contracts reached 109m, soaring from 40.6m in 2019, while accounting for 28.7% of the global total, compared with 14.0% in 2019. From a broader perspective, the global commodity futures and options market kept expanding in the past three years, and achieved a combined trading volume of 9.59bn in 2020, up 32.8% YoY. Notably, the report of the Futures Industry Association (FIA) showed that trades of energy-related futures and options were most active in 2020, occupying 33.4% of the total. The readings of the domestic and global markets signaled large development room for INE’s crude oil options.

Sources:

https://finance.caixin.com/2021-05-07/101706962.html

http://futures.eastmoney.com/a/202011221710004036.html

https://www.fia.org/sites/default/files/2021-01/2020%20annual%20trends%20in%20futures%20and%20options%20trading_%2027%20January%202021%20Distribution.pdf

http://www.cfachina.org/aboutassociation/associationannouncement/202102/t20210210_15426.html

http://www.cfachina.org/servicesupport/researchandpublishin/publication/chinafutures/2021/zgqh_1_79/202103/P020210317494699641815.pdf

https://finance.sina.com.cn/roll/2020-08-18/doc-iivhvpwy1720237.shtml