November 23, 2018 / 9:45 AM / 23 days ago

China's Dalian Exchange to relax position limits on iron ore, select agriculture futures

BEIJING, Nov 23 (Reuters) - China’s Dalian Commodity Exchange (DCE) will relax its risk management restrictions on some futures, including its first internationalised flagship iron ore contracts, in an effort to lure more investors to boost liquidity.

It will double the maximum position holding limits for iron ore, soymeal, corn, soybean oil and palm oil contracts, according to a statement issued by the DCE on Friday.

Individual clients and member companies of the DCE, excluding futures brokerages, will be allowed to hold up to 40,000 lots of iron ore contracts if total position the contracts is below 400,000. That will be twice the amount of current restrictions of 20,000 lots.

The adjustment comes amid slump in volumes in iron ore contracts as prices stagnate, in a bid to attract investors with bigger hedging needs and spur liquidity of the futures.

Iron ore is the second commodity China has opened to overseas investors following the launching of crude oil futures contracts.

However, since its internationalisation in May, the most-traded iron ore contract has seen open interest, a measure of liquidity, fell to 586,168 lots on Friday, down 72 percent from a May high of 2.11 million lots.

Monthly trading volumes at iron ore futures plunged nearly two-third from May to 20.52 million lots in October.

The bourse has been striving to attract more overseas investors to participate iron ore trading. By end-September, 57 foreign investing institutes have traded in the DCE, according to the bourse. That compares to 50 international houses in May.

It also plans to launch iron ore options in 2019, offering more hedging tools to iron ore producers and steelmakers as well as being more competitive in global market.

The new risk management regulation at the DCE will take effective after settlement on Nov.26.

Reporting by Muyu Xu and Dominique Patton; Editing by Rashmi Aich

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