Third Party Service
○ Price Insurance Service
In the process of bulk commodity trading, there are problems such as long cycle, frequent fluctuations in prices, risk exposure, risk uncontrollability, etc. These problems are particularly prominent in bulk commodities international trading process such as iron ore, etc. Both suppliers and buyers require an efficient and convenient, cost-effective and low-risk tool that can insure commodity prices.
On the basis of actual needs, relying on the port advantages, financial advantages and risk management advantages of the shareholders - Zhejiang Seaport Group, ICBC, and Nanhua Futures, taking the “price insurance” as the core purpose and “efficiency and convenience, low-cost, controllable risk and the service spot as the goal to the commodity trading platform as the carrier, taking bulk commodity trading platform as the carrier and the business system as guarantee, Zhejiang Seaport Bulk Commodity Exchange innovatively designed the bulk commodity spot price insurance services products jointly with the risk management provider.
Taking the domestic trading of iron ore as an example, the purchaser can buy the price insurance from the risk management service supplier after purchasing the iron ore. If the spot price of iron ore fluctuates in the process of batch picking and causes losses to the purchaser, the risk management service supplier shall bear the corresponding risk losses according to the insurance policy.
○ Price Fixing
There are needs of efficiency lifting, financing, hedging/ price fixing and others during the process of bulk commodity spot trading due to tedious procedures, large capital occupation and big risk exposure. At present, a number of domestic trading platforms are seeking for providing the above services for the bulk commodity chain, but fail to make a difference.
On the basis of in-depth market research, by giving full play to port, finance, risk management and other advantages, depending on the Internet information technology system and in partnership with domestic qualified risk management service providers, Zhejiang Seaport Bulk Commodity Exchange provides customized price fixing products for traders so as to offer comprehensive, one-stop and all-around service for bulk commodity industry chain and solve price fixing problems for subjects of the industry chain during trading process.
For international trade of iron ore, for example, a purchaser of iron ore can buy price fixing service from risk management service providers during the transport of iron ore to prevent the risk to the purchaser due to spot price fluctuation.
○ Iron Ore Swaps
I. Iron Ore Swap
Iron ore swap refers to transaction agreement signed by the client and Industrial and Commercial Bank of China to carry out goods sale and purchase at agreed price and quantity at one or more specified dates and cash delivery (no physical delivery) based on the difference of agreed price and current average price (generally, the monthly average price) at each agreed date.
II. Requirements for Iron Ore Swap
(1) Having real demand, and authentic underlying assets or basic liabilities concerning derivatives transaction applied;
(2) Qualified for or authorized to carry out derivatives transaction;
(3) Understanding the risk of derivative products and willing to bear potential losses;
(4) Having no bad credit records in banks and no other major bad record;
(5) Opening accounting account for derivatives transaction at Industrial and Commercial Bank of China.
III. Procedures for Iron Ore Swap
(1) Client Evaluation: Client should provide official approval or authorization of derivatives transaction issued by competent state-owned asset authority or internal competent authority (such as the shareholders’ meeting, the head office, etc.) and accept the audit of real demand by ICBC. Client should also cooperate with ICBC during ICBC’s comprehensive assessment of its financial derivative business experience, internal management control and other aspects.
(2) Signing of General Agreement: If a client meets the commodity trading access requirements of ICBC and is assessed as having appropriate risk tolerance, the client should sign the Business Agreement on Risk Management by Industrial and Commercial Bank of China on Behalf of Client before a transaction to define concerning rights and obligations.
(3) Application: A client may submit an application for each transaction depending on business needs and sign the Confirmation on Financial Derivative Business for Corporate Client of Industrial and Commercial Bank of China with ICBC for each transaction.
(4) Implementation of Guarantee Measures: A client may pay earnest money or provide collateral or pledge or use special credit line of financial derivatives transaction.
(5) Transaction Conclusion: ICBC submits a Confirmation of Transaction to the client to confirm the transaction with the client. During the transaction term, if the transaction floating loss of the client reaches a certain percentage of the earnest money payable at the beginning of the period, the client shall pay additional earnest money as agreed.