Measures for Risk Management of Dalian Commodity Exchange Chapter 1 General Provisions 1. Subject to Trading Rules of Dalian Commodity Exchange, these Measures are enacted for purpose of enhancing risk management in futures trading, protecting lawful rights and interests of futures market participants, and ensuring proper futures trading operation on Dalian Commodity Exchange (the Exchange ). 2. The Exchange has implemented Margin System, Price Limit System, Position Limit System, Large Position Reporting System, Mandatory Position Liquidation System and Risk Warning System. 3. The Exchange, the members and the customers who conduct futures contract transactions on the Exchange must comply with these Measures. Chapter 2 Margin System 4. A margin system is implemented at the Exchange. The minimum trading margins of futures contracts of No. 1 Soybeans, No. 2 Soybeans, Soybean Meal, Soybean Oil, RBD Palm Olein, Corn, Linear Low Density Polyethylene (LLDPE), Polyvinyl Chloride (PVC) and Metallurgical Coke are five percent (5%) of the contract value. Trading margins for new positions shall be collected in accordance with the trading margin standard applied at the clearing time on the previous trading day. The Exchange may in its discretion adjust the margin requirement for each contract in accordance with market conditions. 5. Stating from the first trading day of the month immediately preceding the delivery month when the commodity futures contract listed on the Exchange, the Exchange shall take steps to increase the trading margin requirement in accordance with the trading period. The trading margin standard of a contract in a certain trading period shall be implemented starting from the settlement time of the trading day immediately preceding the first trading The followings are the standards of trading margins for the commodity futures
contracts listed on the Exchange during the time near delivery: Trading Period N Trading Margin (yuan / per contract) The first trading day in the month immediately preceding the delivery month 10% of the contract value The sixth trading day in the month immediately preceding the delivery month 15% of the contract value The eleventh trading day in the month immediately preceding the delivery month 20% of the contract value The sixteenth trading day in the month immediately preceding the delivery month 25% of the contract value The first trading day of the delivery month 30% of the contract value 6. As the open positions in a contract is (are) growing, the Exchange shall increase the trading margin rate for this contract. Trading margins for No.1 Soybeans, Soybean Meal and PVC as open positions change: Open Positions of both sides N Trading Margin (yuan / per contract) N 1,000,000 contracts 5% of the contract value 1,000,000 contracts < N 1,500,000 8% of the contract value 1,500,000 contracts < N 2,000,000 9% of the contract value 2,000,000 contracts < N 10% of the contract value Trading margins for No.2 Soybeans and Soybean Oil as open positions change: Open Positions of both sides N Trading Margin (yuan / per contract) N 500,000 contracts 5% of the contract value 500,000 contracts < N 600,000 8% of the contract value 600,000 contracts < N 700,000 9% of the contract value 700,000 contracts < N 10% of the contract value Trading margins for Corn as open positions change: Open Positions of both sides N Trading Margin (yuan / per contract) N 1,500,000 contracts 5% of the contract value 1,500,000 contracts < N 2,000,000 8% of the contract value 2,000,000 contracts < N 2,500,000 9% of the contract value
2,500,000 contracts < N 10% of the contract value Trading margins for RBD Palm Oil, LLDPE, and Metallurgical Coke as open positions change: Open Positions of both sides N Trading Margin (yuan / per contract) N 250,000 contracts 5% of the contract value 250,000 contracts < N 300,000 8% of the contract value 300,000 contracts < N 350,000 9% of the contract value 350,000 contracts < N 10% of the contract value 7. If the price of a futures contract has reached the price limit, trading margin for the contract shall be implemented in accordance with the rules defined in Chapter 3 of these Measures. 8. If the sum of increase (decrease) of a futures contract of three consecutive trading days calculating based on the settlement price has reached two times of the maximum price fluctuation as defined by the contract, the sum of increase (decrease) of a futures contract of four consecutive trading days calculating based on the settlement price has reached two and half times of the maximum price fluctuation as defined by the contract, or the sum of increase (decrease) of a futures contract of five consecutive trading days calculating based on the settlement price has reached three times of the maximum price fluctuation as defined by the contract, the Exchange may in its discretion, on one side or on both sides, proportionally or not proportionally, for some or all members, increase required trading margins in accordance with market conditions. The increase of trading margin shall not be higher than the amount that doubles the trading margin prescribed in the contract. The Exchange shall report to the China Securities Regulatory Commission ( CSRC ) prior to the implementation of the above-mentioned procedures. 9. Prior to trading halt, due to the longer length of legal holidays, the Exchange may in its discretion adjust trading margin requirement and/or the price limits in accordance with market conditions. 10. If trading margin of a contract is defined simultaneously by more than one article of these Measures, its trading margin shall be collected in accordance with the larger or largest amount of trading margin required by above -mentioned measures. Chapter 3 Price Limit System
11. Price limit system has been implemented on the Exchange. The Exchange shall determine the daily maximum price fluctuation for each contract. The Exchange may in its discretion adjust the up and down price limits in accordance with market conditions. If the price limit of a contract is defined simultaneously by more than one articles of these Measures, its price limit shall be determined in accordance with the larger or largest amount of price limit prescribed by above -mentioned articles. 12. The daily price limits for No. 1 Soybeans, No. 2 Soybeans, Soybean Meal, Soybean Oil, RBD Palm Oil, Corn, LLDPE, PVC, Metallurgical Coke contract in regular months (the months prior to the delivery month) are four percent (4%) of the settlement price on the previous trading day; the daily price limit in delivery month is six percent (6%). The daily price limit of a newly listed contract is as twice as that of regular months. If there are transactions on the first trading day, therefore, the daily price limit on the next trading day shall be as same as that of regular month; otherwise, the daily price limit of the previous trading day shall continually be carried out. 13. When a futures contract is quoted at price limit, the matching principle is that of liquidation and time priority. 14. The phrase no continuous quotes on one side at the price limit means that within five minutes preceding the closing of the market there have been only bid (offer) quotes but no offer (bid) quotes at the price set forth as the limit, or transactions are completed immediately after offers (bids) have been initiated so that the price has not moved away from the price set forth as the limit, of a certain futures contract on a certain trading day. 15. If the situation of no continuous quotes on one side at the price limit occurs in commodity futures contract listed on the Exchange on a certain trading day (the N th day), at the settlement of that day, the trading margin for that futures contract shall be eight percent (8%) of the contract value. On the next trading day (the (N+1) th day), the price limit of contracts shall be six percent (6%) of the contract value. 16. If on the (N+1) th trading day the situation of no continuous quotes on one side at the price limit occurs in the same direction as that on the N th trading day, starting from the settlement of the (N+1) th trading day, the trading margin for futures contract
shall be ten percent (10%) of the contract value On the (N+2) th trading day, the price limit for futures contract shall be eight percent (8%). 17. In case on trading day N+2 the situation of no continuous quotes on one side at the price limit occurs on contracts of products expect Metallurgical Coke in the same direction as that on the trading day N+1, upon the closing of the market on the N+2 day, the Exchange will implement forced position reduction. If continuous price limit in the same direction arises from abnormal trading acts conducted by members or customers, it shall be dealt with in accordance with Chapter 7 of these Measures. In case on trading day N+2 the situation of no continuous quotes on one side at the price limit occurs on contracts of Metallurgical Coke in the same direction as that on the trading day N+1, upon the closing of the market on the N+2 day, if the trading day N+2 is the last trading day of the contract, the contract enters into delivery period directly; if the trading day N+3 is the last trading day of the contract, trading shall continue in accordance with the same price limit and margin requirement as the trading day N+2; excepting above-said situations, the Exchange may determine to take any one of two following measures on the contract and announce it in accordance with market conditions: Measure : On the trading day N+3, the Exchange will take one or more of the following risk-control measures: to increase trading margin requirement for trading of one side or both sides, proportionally or not proportionally, for some or all members, to suspend position building for some or all members, to adjust the price limit, to limit withdrawing funds, to set forth a deadline for closing out positions; to implement mandatory position liquidation. Measure : Upon the closing of the market on the trading day N+2, the Exchange will implement forced position reduction. 18. If no continuous quotes on one side at the price limit does not occur on a certain futures contract on a certain trading day as it did on the previous trading day, at the settlement of that trading day, the trading margin requirement shall resume its normal level. On the next trading day, the allowed price change shall resume its normal level. 19. The term Forced Position Reduction means that the Exchange shall automatically match the outstanding quoted orders whose quoted prices equal the daily limit price with positions held by the customers (non-brokerage members, the same below) whose net positions of the contract are profitable, at the price set forth as
the daily limit. If a customer has both short and long positions of the contract, then the net open positions on the liquidation list participate in the calculation of forced positions reduction. Other positions on the liquidation list shall be automatically offset with each other as locked as opposites. Procedures of conducting forced position reduction are described as below: 19.1. to determine the amount of the quoted positions to be liquated: Upon the closing of the market on the trading day N+2, if a quote submitted at the price limit to the computer system remains unmatched, and the unit loss of the customer s net open positions of the contract is equal to or larger than five percent (5%) of the settlement price on the N+2 day (RBD Palm Oil 4%), then all the open positions of the customer s contract shall be calculated as liquidated quotes. If a customer is not willing to liquate his position(s) in the above-described manner, he may cancel his order(s) before the closing of the market to exempt his positions from being quoted and liquated. 19.2. to determine the unit profit or loss of a customer s net positions: Unit profit or loss of customer s net positions of the contract = The total amount of profits or losses of the customer s open positions of the contract / Customer s net positions of the contract (contract) * trading unit (ton per contract) The phase total amount of profits or losses of the customer s open positions of the contract means that the sum of profits or losses of all the open positions of the contract calculated in accordance with the differences between the actual transaction price and the settlement price of that day. 19.3. to determine the liquidating scope for customers who profit from their net positions: A position shall be liquated if it is a speculative position and the customer s profit on each contract in his net positions is larger than zero, and it is a hedge position and the customer s profit on each contract in his net positions is equal to or larger than seven percent (7%) of the settlement price on trading day N+2. 19.4. principles and methods of liquidation allocation: 19.4.1. principles of liquidation allocation 19.4.1.1. within the liquidation scope, in accordance with the amount of profit and depending on whether it is a position of speculation or hedge, there are four levels of allocation. Liquidation shall be first allocated to speculative positions that are in the liquidating
scope with unit profit of net positions larger than six percent (6%) of the settlement price on the trading day N+2 ( speculative positions with more than 6% profit, hereafter); Liquidation shall be next allocated to speculative positions whose unit profit of net positions is equal to or larger than three percent (3%) but smaller than six percent (6%) of the settlement price on the trading day N+2 ( speculative positions with more than 3% profit, hereafter); Liquidation shall be then allocated to speculative positions whose unit profit of net positions is smaller than three percent (3%) but larger than zero of the settlement price on the trading day N+2 ( speculative positions with more than zero profit, hereafter); Liquidation shall be finally allocated to hedge positions whose unit profit of net positions is equal to or larger than seven percent (7%) of the settlement price on the trading day N+2 ( hedge positions with 7% profit, hereafter). 19.4.1.2. the allocation ratios among above-mentioned allocation levels are determined by the ratios between the total quoted positions to be liquated (the remainder of the quoted positions to be liquated) and the amount of profitable positions to be liquated on each level. 19.4.2. methods and steps of liquidation allocation: If the amount of speculative positions with more than 6% unit profit of net positions is equal to or larger than the amount of the quoted positions to be liquidated, then the quoted position to be liquidated shall be actually allocated among the speculative positions with more than 6% unit profit of net positions in accordance with the ratio between the amount of the quoted positions to be liquidated and the amount of speculative positions with more than 6% unit profit of net positions. If the amount of speculative positions with more than 6% unit profit of net positions is less than the amount of the quoted positions to be liquidated, then the speculative positions with more than 6% unit profit of net positions shall be actually allocated among customers with quoted positions to be closed out in accordance with the ratio between the amount of the positions to be liquidated and the amount of speculative positions with more than 6% unit profit of net positions. The remainder of the quoted positions to be liquidated shall be allocated among speculative positions with more than 3% unit profit of net positions in the same method. If there are remaining quoted positions to be liquated after that, they shall be allocated among speculative positions with larger than zero unit profit of net positions. If there are still
remaining quoted positions to be liquated, they shall be allocated among hedge positions with 7% unit profit of net positions. There shall be no further allocation if there is still a remainder after the last step. The liquidated amount shall be allocated in accordance with the unit of contract. The amount less than one contract shall be calculated in accordance with the method as follows: the integral part of the liquidated amount allocated into each trading code shall be allocated first, then the decimal part shall be allocated in descending order rounded by carrying. 19.5. execution of forced position reduction Forced position reduction shall be automatically executed upon the closing of the market on the trading day N+2 in accordance with the principles of forced position reduction. The result of the forced position reduction shall be taken as the result of the member s trading on the N+2 day. 19.6. prices of forced position reduction Prices of forced position reduction shall be the prices set forth as daily limits of the futures contract on the trading day N+2. 19.7. On the day when forced position reduction occurs, trading margin requirement shall resume its normal level at the settlement time. On the next trading day the daily price limit shall be implemented as prescribed in the contract. 19.8. Each member and its customers shall be liable to the financial losses resulted from forced position reductions. 20. If risks related to a futures contract persist after the above-mentioned procedures have been taken, the Exchange shall declare an abnormal situation, and take actions to control risks in accordance with applicable regulations. Chapter 4 Position Limit System 21. A position limit system has been implemented on the Exchange. The term position limit means the maximum amount of speculative futures contracts calculated on one side a member or customer can hold as determined by the Exchange upon which the contract is traded. 22. The position limit system implements basic rules as follows: 22.1. position limit of each futures contract of each delivery month shall be determined in accordance with the particularities of each product; 22.2. position limits of a certain contract of a certain delivery month traded on different phases shall be differentially determined in accordance with the nature of the
phase. Position limit for contracts in delivery months shall be tightly managed; 22.3. the method that combines limiting a member s position with limiting a customer s position shall be adopted in order to control market risks. Position limit should be applied to both members and customers to control market risks. 22.4. Hedging positions shall be applied and granted by the Exchange, and is exempt from position limits. 23. If a customer has different trading codes with different members, the total amount of the positions he holds in all these trading codes shall not exceed the position limits set forth for a customer. 24. Position limits of each contract shall be determined in accordance with each trading phases in which it is traded. 24.1. during a contract of products other than Metallurgical Coke traded in regular months (the months prior to the month immediately preceding the delivery month), since its open interest reaches a certain level, the position limits of the contract is set by a certain ratio of total open interest ; before its open interest reaches that level, the position limits of the contract is determined by an absolute volume. Position limit of a contract shall be determined by an absolute volume during the month immediately preceding the delivery month and the delivery month. 24.2. Since open interest of Metallurgical Coke contracts reaches a certain level, the position limit for a member is determined by a certain ratio of total open interest; if open interest is less than or equal to the certain level, open positions of Metallurgical Coke contract for a brokerage member shall not be limited. The position limits of Metallurgical Coke contract for either a non-brokerage member or a customer shall be determined by an absolute volume. 25 If the one-side open interest of No. 1 Soybeans, Soybean Meal Corn or PVC contract of a regular month is larger than 200,000 contracts, the position limits of that contract for a brokerage member shall be no more than 25% of the one-side open interest, the position limits of that contract for a non-brokerage member shall be no more than 20% of the one-side open interest, and the position limits of that contract for a customer shall be no more than 10% of the one-side open interest. If the one-side open interest ofno.2 Soybean, Soybean Oil or LLDPE contract of a regular month is larger than 100,000 contracts, the position limits of that contract for a
brokerage member shall be no more than 25% of the one-side open interest, the position limits of that contract for a non-brokerage member shall be no more than 20% of the one-side open interest, and the position limits of that contract for a customer shall be no more than 10% of the one-side open interest. If the one-side open interest of RBD Palm Oil contract of a regular month is larger than 50,000 contracts, the position limit of that contract for a brokerage member shall be no more than 25% of the one-side open interest, the position limit of that contract for a non-brokerage member shall be no more than 20% of the one-side open interest, and the position limit of that contract for a customer shall be no more than 10% of the one-side open interest. If the one-side open interest of No. 1 Soybeans, Soybean Meal, Corn or PVC contract of a regular month is equal to or less than 200,000 contracts, the position limits of that contract for a brokerage member is 50,000 contracts, the position limits of that contract for a non-brokerage member is 40,000 contract, and the position limits of that contract for a customer is 20,000 contracts. If the one-side open interest of No.2 Soybeans, Soybean Oil or LLDPE contract of a regular month is equal to or less than 100,000 contracts, the position limit of that contract for a brokerage member is 25,000 contracts, the position limits of that contract for a non-brokerage member is 20,000 contract, and the position limits of that contract for a customer is 10,000 contracts. If the one-side open interest of RBD Palm Oil contract of a regular month is less than or equal to 50,000 contracts, the position limit of that contract for a brokerage member is 12,500 contracts, the position limit of that contract for a non-brokerage member is 10,000 contracts, and the position limit of that contract for a customer is 5000 contracts. If the one-side open interest of Metallurgical Coke contract is larger than 50,000 contracts, the position limits of that contract for a brokerage member shall be no more than 25% of the one-side open interest; if the one-side open interest of Metallurgical Coke contract is less than or equal to 50,000 contracts, open positions of that contract for a brokerage member shall not be limited. The position limits of that contract of a regular month for either a non-brokerage member or a customer is 2,400 contracts. 26. In the month immediately preceding the delivery month and the delivery month, the position limits for No 1 Soybeans, No 2 Soybeans, Soybean Meal and PVC contracts are:
unit contract Trading period Starting from the first trading day of the month immediately preceding the delivery month Starting from the tenth trading day of the month immediately preceding the delivery month Brokerage Non-Brokerage Member Member Customer 25,000 20,000 10,000 12,500 10,000 5,000 Delivery Month 6,250 5,000 2,500 In the month immediately preceding the delivery month and the delivery month, the position limits for Soybean Oil and LLDPE contracts are: unit contract Trading period Brokerage Member Non-Brokerage Member Customer Starting from the first trading day of the month immediately preceding 10,000 8,000 4,000 the delivery month Starting from the tenth trading day of the month immediately preceding 5,000 4,000 2,000 the delivery month Delivery Month 2,500 2,000 1,000 In the month immediately preceding the delivery month and the delivery month, the position limits for Corn contracts are: unit contract Trading period Starting from the first trading day of the month immediately preceding the delivery month Brokerage Member Non-Brokerage Member Customer 50,000 40,000 20,000
Starting from the tenth trading day of the month immediately preceding the delivery month 25,000 20,000 10,000 Delivery Month 12,500 10,000 5,000 In the month immediately preceding the delivery month and the delivery month, the position limits for RBD Palm Oil contracts are: unit contract Trading period Starting from the first trading day of the month immediately preceding the delivery month Starting from the tenth trading day of the month immediately preceding the delivery month Brokerage Member Non-Brokerage Member Customer 5,000 4,000 2,000 2,500 2,000 1,000 Delivery Month 1,250 10,00 5,00 During the month immediately preceding the delivery month and the delivery month, the position limits for Metallurgical Coke contracts are: Trading period Starting from the first trading day of the month immediately preceding the delivery month Non-Brokerage Member Customer 900 900 Delivery Month 300 300 Individual customers shall not carry positions of a contract during the contract s delivery month. The position limit level of a futures contract during a certain trading period shall be implemented starting from the settlement cycle of the trading day before the first day of the trading period. 27. The positions a member or customer holds shall not exceed the position limits as prescribed by the Exchange. The member or customer who holds positions in excess
of the position limits is not allowed to open new positions in the same direction. The Exchange shall impose a mandatory liquidation on the non-brokerage member or customer who holds positions in excess of the position limits and on the brokerage member who holds positions in excess of the position limits of contracts of products other than Metallurgical Coke on the next trading day in accordance with applicable regulations. The Exchange shall not impose a mandatory liquidation on the brokerage member who holds positions in excess of the position limits of Metallurgical Coke. If a customer has more than one trading code with different brokerage members and the total holding of his outstanding positions exceeds the position limits, the Exchange shall appoint relevant brokerage member(s) to mandate the customer to liquidate his excessive positions. 28. If the total number of outstanding positions held by customers of a brokerage member exceeds the position limit for the brokerage member, in principle, the brokerage member shall supervise its customers in conducting their position reductions using the ratio of [ (total volume-position limits) /total volume]; if the positions are still in excess of limits, the Exchange shall enforce mandatory position liquidation in accordance with applicable regulations. Chapter 5 Large Position Reporting System 29. The Exchange has implemented a large position reporting system. If the number of speculative positions of a certain contract held by a single member or customer has reached the threshold that is equal to or larger than eighty percent (80%) of the position limits the Exchange has set forth for the member or customer s speculative positions, the member or customer, via his brokerage member, shall report his financial and positions situations to the Exchange. The Exchange may in its discretion adjust the reporting level based on risk conditions in the market. 30. If the positions held by a member or customer reach the reporting threshold specified by the Exchange, the member or customer shall report to the Exchange before 3:00 PM on the next trading day on his own initiative. If another report or a supplementary report is needed, the Exchange shall notify the member in question. 31. A brokerage member whose positions have reached the reporting threshold shall
provide the Exchange with: 31.1. the completely filled Large Position Report By a Brokerage Member (see appendix 2), the contents of which include member name, member code, contract symbol, open positions, margin for open positions, available funds, the number of the customers who hold positions, the number of the contract that is noticed intention to deliver, the number of the contract that is noticed to deliver; 31.2. statement of sources of funds; 31.3. the names, trading codes, open positions, account application materials and settlement materials for the current day of the top five customers in terms of open positions; 31.4. other materials required by the Exchange. 32. A non-brokerage member who has reached the reporting threshold shall provide the Exchange with: 32.1. the completely filled Large Position Report By a Non-Brokerage Member (see appendix 3), the contents of which include member name, member code, contract code, open position, the nature of position holding, margin for open positions, available funds, the intention of holding positions, the number of the contract that is noticed intention to deliver, the number of the contract that is noticed to deliver; 32.2. statement of sources of funds; 32.3. other materials required by the Exchange. 33. A customer who has reached the reporting threshold shall provide the Exchange with: 33.1. the completely filled Large Position Report by a Customer (see appendix 4), the contents of which include member name, member code, the customer s name and trading code, contract symbol, open positions, the nature of position holding, margin for open positions, available funds, the intention of holding, the number of the contract that is noticed intention to deliver, the number of the contract that is noticed to deliver; 33.2. statement of sources of funds; 33.3. the account application materials and settlement materials for the current day; 33.4. other materials required by the Exchange.
34. The brokerage member shall pre-examine the materials provided by the customer whose positions have reached the reporting threshold specified by the Exchange, and then submit them to the Exchange. The brokerage member shall guarantee the truthfulness of the materials provided by its customers. 35. The Exchange shall examine and verify the materials provided by members and customers on an unscheduled basis. 36. If a customer has more than one trading account with different brokerage members and the total volume of his position has reached the reporting threshold, the Exchange shall appoint and notify the relevant brokerage member of the responsibility of submitting the required report on the customer s situation. Chapter 6 Mandatory Position Liquidation 37. In order to control market risks, the Exchange has implemented a mandatory position liquidation system. The term mandatory position liquidation means a compulsory measure whereby the Exchange liquidates the positions held by a member or customer who is in violation with rules and regulations. 38. If a member or customer is under one of the following conditions, the Exchange shall in its discretion to mandate him to liquidate his positions: 38.1. the balance of the member s settlement reserve fund is less than zero and the member fails to make up the deficit before a prescribed time; 38.2.the positions held by the non-brokerage member or by the customer exceed the position limit and positions of products except Metallurgical Coke held by the brokerage member exceed the position limit ; 38.3.mandatory liquidation is imposed by the Exchange for violation or breaches; 38.4. mandatory liquidation is required as an emergency measure of the Exchange; 38.5. other circumstances specified by the Exchange in which mandatory liquidation is deemed necessary. 39. Principles to execute mandatory position liquidations The position involved in the mandatory liquidation shall be liquidated in the first trading session after the opening of the market except as otherwise prescribed by the Exchange. If a member fails to complete the liquidation within the specified time limit, the Exchange will enforce liquidation. If reason for the mandatory position liquidation is that the balance of the settlement reserve fund is below zero, the member who fails to make up the margin up to the minimum balance of settlement reserve fund is
not allowed to open new positions.. 39.1. to determine the positions to be mandatorily liquated by members; 39.1.1. In the case of mandatory position liquidation due to the circumstance set forth in 38.1 and 38.2 hereof, the positions to be liquidated shall be determined by the member itself, provided that the liquidation result shall conform to the regulations of the Exchange. 39.1.2. In the case of mandatory position liquidation due to the circumstance set forth in 38.3, 38.4 and 38.5 hereof, the positions to be liquidated shall be determined by the Exchange. 39.2. to determine the positions to be mandatorily liquidated by the Exchange 39.2.1. In the case of mandatory liquidation due to the circumstance set forth in 38.1 hereof, mandatory liquidation shall be imposed on all the customers of the member by the principle of the proportion of positions to be liquidated based on trading margin. the proportion of positions to be liquidated = the additional trading margin to be submitted by the member / the total amount of trading margin of the member 100% margins to be released = the total amount of trading margin of the customer the proportion of positions to be liquidated the Exchange will impose mandatory liquidation on the customer s positions by the principle of that speculative positions precede hedge positions and in a descending sequence in terms of the total positions held in each contract after the closing of the market on the previous trading day, and contracts with larger positions will be chosen as contracts to be liquidated in the first place. If mandatory liquidation is necessary for several members, the Exchange will choose members for the liquidation in a decreasing sequence in terms of the amount of the additional trading margin required to be provided. 39.2.2. In the case of mandatory liquidation due to the circumstance set forth in 38.2 hereof, mandatory liquidation shall be imposed in the order of that speculative positions precede hedge positions if both speculative positions and hedge positions exceed the position limit. If both the customer and the member s speculative positions exceed the position limit,
mandatory liquidation will be imposed in the order of that the customer s speculative positions precede the member s speculative positions. If several members speculative positions exceed the position limit, mandatory liquidation will be imposed in a descending sequence in terms of the quantity of excessive positions. If the brokerage member s speculative positions exceed the position limit, the quantity of positions held by the customer to be mandatorily liquidated will be determined by the proportion of the excessive speculative positions held by the member and speculative positions held by the member and the amount of positions held by the customer. If both the brokerage member and the customer s speculative positions exceed the position limit at the same time, mandatory liquidation will be imposed on the excessive positions held by the customer in the first place, then on the excessive positions held by the brokerage member. If the speculative positions held by the customer exceed the position limit, mandatory liquidation will be imposed on the excessive speculative positions held by the customer; where the Exchange forces liquidation of excessive positions, if the customer holds positions at different members, the Exchange will choose members for liquidation in the decreasing sequence in terms of the quantity of positions held at each member. If several customers speculative positions exceed the position limit, mandatory liquidation shall be imposed in the descending sequence in terms of the quantity of excessive positions held by the customer. If there are approved hedge positions held by the customer or hedge positions held by the non-brokerage member that exceed the position limit and at the same time if there are non-approved hedge positions held by the customer or hedge positions held by non-brokerage member that exceed the position limit, mandatory liquidation will be imposed either on approved hedge positions held by the customer or on the non-brokerage member. If approved hedge positions held by the customer or hedge positions held by the non-brokerage member exceed the position limit, mandatory liquidation will be imposed in the decreasing sequence in terms of the quantity of excessive hedge positions. If either the non-approved hedge positions held by the customer or hedge positions held by the non-brokerage member exceed the position
limit, mandatory liquidation will be imposed on excessive hedge positions held by the customer or the non-brokerage member; if the customer holds hedge positions at different members, mandatory liquidation will be imposed in the decreasing sequence in terms of the quantity of positions held at each member. If several non-approved hedge positions held by the customer or hedge positions held by the non-brokerage member exceed the position limit, mandatory liquidation will be imposed in the decreasing sequence in terms of the quantity of excessive hedge positions held by the customer or the non-brokerage member. 39.2.3. In the case of mandatory liquidation due to the circumstance set forth in 38.3, 38.4 and 38.5 hereof, the Exchange will determine the positions for mandatory liquidation in accordance with the specific circumstances of the member or customer involved. If a member s situation satisfies both 38.1 and 38.2, the Exchange shall first enforce mandatory liquidation in accordance with 38.2 and then enforce mandatory liquidation in accordance with 38.1. 40. Execution of mandatory position liquidation: 40.1. Notification The Exchange shall issue a Notification of Mandatory Position Liquidation (hereinafter referred to as the Notification ) to -relevant members for mandatory liquidation.. Unless separately delivered by the Exchange, the Notification will be sent along with the clearing data of the same day, and relevant members can obtain the Notification via the Member Service System. 40.2. Execution and confirmation. 40.2.1. After the opening of the market, the relevant members shall liquidate positions on their own until the requirement of mandatory position liquidation has been met; 40.2.2.If a member fails to fully complete liquidation within the specified time limit, the Exchange will enforce liquidation of the remaining portion 40.2.3. Upon the completion of mandatory position liquidation, the Exchange shall record the result of execution and file it on record; 40.2.4. Result of mandatory position liquidation shall be sent along with transaction record of the same day, the relevant member shall be able to obtain it through the Member Service System.
41. The price for the mandatory liquidation will be generated from market transactions. 42. In the event that mandatory liquidation can not be fully completed on the same day due to daily price up/down limit or other market factors, the Exchange shall take appropriate actions against the member or customer in accordance with the result of settlement. 43. In the event that mandatory liquidation can only be completed by a later time due to daily price up/down limit or other market factors, any losses arising therefrom shall be borne by the party held directly responsible. In case that the liquidation is not completed, the position holder shall continue to assume the responsibility for holding the positions or bear delivery obligation. 44. The profit resulted from a mandatory position liquidation implemented by the member shall still be taken by the directly responsible party; any profit resulted from a mandatory positions liquidation implemented by the Exchange shall be confiscated; any loss resulted from a mandatory position liquidation shall be borne by the directly responsible party. If the directly responsible party is a customer, the losses resulted from mandatory position liquidation shall be first taken by the brokerage member with whom the customer maintains its trading account, and then be claimed by the member from the customer. Chapter 7 Dealing with Abnormalities 45. Upon the occurrence of any of the following situations during trading sessions, the Exchange may declare an abnormal situation and take emergency measures to mitigate risks: 45.1 market disruption resulting from force majeure such as earthquake, flooding or fire, or computer system failure, or other causes that are not attributable to the Exchange; 45.2 a member is in a settlement and delivery crisis that has or would have a significant impact on the market; 45.3 there is a continuous occurrence of only buy orders or only sell orders quoted at the daily price up/down limit and there is a ground to believe that a member or customer has committed a breach of the trading rules of the Exchange or the implementing rules thereof that has or would have a significant impact on the market; 45.4 other situations as prescribed by the Exchange.
Upon the occurrence of the abnormal situation set forth in 45.1, the president of the Exchange may in his discretion take such emergency measures as adjusting the market opening and closing time and suspending trading. Upon the occurrence of the abnormal situation set forth in 45.2, 45.3 and 45.4, the board of directors of the Exchange may in its discretion take such emergency measures as adjusting the market opening and closing time, suspending trading, adjusting the daily price up/down limits, raising the trading margin level, suspending opening new positions, ordering a close-out of positions within a specified time limit, enforcing mandatory position liquidation, and limiting the withdrawal of funds. 46. If there has or would have a significant impact on the import of RBD Palm Olein for the factors such as war, social instability and natural calamities etc. in the process of trading, the Exchange may in its direction declare an abnormal situation and the president of the Exchange may in his discretion take such emergency measures as adjusting the market opening and closing time, suspending and stop trading. Upon the completion of settlement of that trading day, the total amount of positions of RBD Palm Olein contracts shall be liquidated at the settlement price of the previous trading day. 47. The Exchange shall report to CSRC before it declares an abnornal situation and takes emergency measures. The emergency measure of suspending trading to be taken on the RBD Palm Olein contracts shall be approved by CSRC. 48. In the event that the Exchange declares an abnormal situation and decides to suspend trading, the suspension period shall not exceed three trading days, unless extended with the approval of CSRC. Chapter 7 Risk Warning System 49. The Exchange adopts a risk warning system. When the Exchange deemed necessary, it may take one or more of such measures as requesting members and customers to report on the situation, holding a cautionary conversation, issuing a risk warning announcement, in order to warn of and mitigate risks. 50. Upon the occurrence of any of the following circumstances, the Exchange may in its discretion require the member or customer to report on the situation, or summon the senior officers of the member or customer to hold a conversation to alert them to risks:
50.1 unusual movement in the futures price; 50.2 unusual trading conducted by a member or customer; 50.3 abnormal positions of a member or customer; 50.4 abnormal change of funds of a member; 50.5 a member or customer is suspected of violations or breaches; 50.6 the Exchange receives any complaint against a member or customer; 50.7 a member is involved in judicial investigation; or 50.8 other circumstances as recognized by the Exchange. If the customer summoned for the conversation, he shall truthfully report the required matter within the required time in the required manner. If a member or customer is required to attend a meeting to discuss risks to be alerted, the member or customer shall conscientiously fulfill the requirement at the required location within the required time in the required manner. If the discussion is required to be conducted through telephone, the records of telephone conversation shall be maintained and preserved; if the discussion is required to be conducted face to face, the conversion shall be recorded and preserved. 51.Upon the occurrence of any of the following circumstances, the Exchange may in its discretion issue a Risk Warning announcement, warning all the members and customers of risks: 51.1. unusual movement in the futures price; 51.2. there is a significant gap between the futures price and cash price; 51.3. a member or customer is suspected of violations or breaches; 51.4. trading by a member or customer involves significant risks; or 51.5. other circumstances as recognized by the Exchange. Chapter 8 Supplementary Provisions 52. Any violation of these Measures shall be dealt with in accordance with pertinent regulations prescribed in the Measures for Handling of Violations of Dalian Commodity Exchange. 53. The interpretative right of these Measures belongs to Dalian Commodity Exchange. 54. These Measures shall be in effect as of the date when it is announced.
Appendix 1: Methods and Steps of Allocating Position Liquidation after the Up and Down Daily Price Limits Have Been Reached in Three Consecutive Trading Days (Enforce Position Reduction)* Step Allocation Condition Allocation Amount Allocation Ratio 1 S-6% T T T / S-6% 2 S-6% < T S-6% S-6% / T T-C 3 S-3% R1 R1 R1/ S-3% Whom to be Allocated S-C with S-6% S-C S-3% 4 S-3% < R1 S-3% S-3% / R1 R-C 5 S-0 R2 R2 R2 / S-0 S-C S-0 6 S-0 < R2 S-0 S-0 / R2 R-C 7 H-7% R3 R3 R3 / H-7% H-C H-7% with with with Done Result If there is R, then steps 3 & 4 Done If there is R, then steps 5 & 6 Done If there is R, then steps 7 & 8 Done 8 H-7% < R3 H-7% H-7% / R3 R-C No further allocation * S-6% = amount of speculative positions with unit profit more than 6% S-3% = amount of speculative positions with unit profit more than 3% S-0 = amount of speculative positions with unit profit is more than zero H-7% = amount of hedge positions with unit profit more than 7% T = total amount of the quoted positions to be liquated R = Remainder of the quoted positions to be liquated S-C = Speculative customer H-C = Hedge customer T-C = Customer with quoted positions to be liquidated R-C = Customer with remaining quoted positions to be liquidated Rr-C = Customer with remaining quoted positions to be liquidated with more than 7% profit Note: 1. R1= T - S-6% 2. R2 = R1 S-3% 3. R3 = R2 S-0 4. The amount of speculative positions and the amount hedge positions both refer to the amount of outstanding positions those positions have unit profit to be liquidated.
Appendix 2: Large Trader Report by a Brokerage Member on Dalian Commodity Exchange Member Name Member Code Date: Volume Volume Number of Pre-advised Customer Customer Contract Date of Used Available of Long of Short Holding Delivery Name Code Symbol Opening Margin Funds Position Position Customers Number Applied Delivery Number Intention of Holding Total Explanation of Fund Sources Member s Comment Exchange s Comment Member Seal Signature of Person in Charge Date Exchange Seal Signature of Person in Charge Date
Appendix 3: Large Trader Report by a Non-Brokerage Member on Dalian Commodity Exchange Member Name Member Code Date: Volume Of Volume Of Pre-advised Applied Contract Nature of Date of Used Available Long Short Volume. of Volume of Symbol Holding Opening Margin Funds Positions Positions Delivery Delivery Intention of Holding Total Explanation of Fund Sources Member s Comment Exchange s Comment Member Seal Signature of Person in Change Date Exchange Seal Signature of Person in Change Date
Appendix 4: Customer Name Customer Code Large Trader Report By a Customer on Dalian Commodity Exchange Member Name Member Code Date: Volume of Volume Contract Date of Nature Used Available Long of Short Symbol Opening of Holding Margin Funds Position Position Pre-advised Delivery Number Applied Delivery Number Intention of Holding Total Explanation of fund Source Member s Comment Exchange s Comment Member Seal Signature of Person in Change Date Exchange Seal Signature of Person in Change Date