Futures Market Price Limit System

，详细分析期货市场中价格限制制度并包含其历史背景、功能定位和结构框架

Abstract

The price restriction regime in the futures market is an important measure to ensure the orderliness of the market, protect investors interests, maintain the legal rights and interests of participants in the futures market, and reflect fair competition in the futures market. This paper mainly discusses the historical background, functional positioning and structural framework of the price restriction regime in the futures market.

1. Historical Background of Price Restriction Regime in Futures Market

The price control system of the futures market is closely related to the development of the futures market. In ancient times, due to the lack of technology, there was no market price restriction system, and the development of the market was relatively simple. In the Ming and Qing Dynasties, in view of the chaotic situation in the futures market, the state began to regulate the price fluctuations of the futures market through legal measures. In the Great Qing Chongzhen Edition of the Great Treasury, it was stipulated that under certain market conditions, if the price of certain commodities deviated too much, the government could impose price restrictions. This was the earliest price restriction regulation in Chinas futures market.

In the Republic of China, the futures market was developed and gradually matured. During this period, the state stepped in to introduce policies to stabilize the price of raw materials and some essential commodities such as grain, and at the same time issued regulations on futures market price coordination and price restrictions. After the founding of the Peoples Republic of China, the state vigorously developed the futures market, and clearly specified related matters better, including the price restrictions in the futures market.

2. Positioning of the Price Control System in Futures Market

The purpose of establishing the price restriction system in the futures market is to prevent speculative trading, excessive price fluctuations and large-scale positions held by speculators, so as to protect investors rights, maintain the normal operation of the futures market, and create a healthy investment environment. In order to realize this goal, governments of various countries impose different price control measures on the futures market.

At present, the main form of price control in the futures market is price limit. This system is designed to ensure the orderliness of the futures market. The basic rules of this system are that when the opening and settlement prices of a commodity exceed the limit, the trading of the commodity will be suspended. Generally speaking, the scope of price limit is related to the physical delivery and trading conditions of the commodity. The range of price limit is usually set by the state, and the exchange will adjust the range according to the public opinion, so that the price control system can better serve the development of the futures market.

3. Structural Framework of Price Restriction Regime in Futures Market

The price control system of the futures market can be generally divided into two types: spot price limit and settlement price limit. According to the different opening and settlement prices of the commodity, the spot price limit is divided into three categories: the total limit, the opening limit and the daily limit. The rules of the total limit stipulate that the settlement price of the commodity on the same day shall not exceed the prescribed limit; the opening limit stipulates that the opening price of the commodity on the same day shall not exceed the prescribed limit; the daily limit stipulates that the increase of the settlement price of the commodity on the same day shall not exceed the prescribed limit.

At present, the worlds major futures exchanges have introduced a full range of price limits. In the United States, the total daily limit for commodities is generally set at 10%, the opening limit is 5%, and the daily limit is 4%. In China, the CFFEX stipulates that the total daily limit for commodities is 8%, the opening limit is 5%, and the daily limit is 3%. In Europe, the UK commodity market also stipulates that the total daily limit for commodities is 8%, the opening limit is 5%, and the daily limit is 3%. Under the same limit standard, the opening limit of the commodities can be adjusted according to the actual situation, so as to make the price adjustment smooth.

Conclusion

Price restriction regimes are an important measure to ensure the orderly operation of the futures market and the protection of the legal rights and interests of investors and market participants. By discussing the historical background, functional positioning and structural framework of the price restriction regime in the futures market, this paper looks into the importance of such price restrictions as a means of protecting investors interests.

Futures markets are sometimes subject to price limits in order to protect investors from excessive losses and unintended manipulation of pricing. A price limit is a maximum price at which a security, contract or commodity may be traded at in a given period of time. It is generally used to limit the level of risk associated with certain trading strategies and tactics.

Price limits can be placed on both long and short positions in the market, and are typically set at one of the following price points:

· The daily price limit, which is the maximum amount of price fluctuation a security or commodity is allowed to experience in one trading day.

· The settlement-price limit, which is the maximum amount of price difference between a security or commodity’s internal settlement price and the average of the two previous trading days’ prices.

· The contract maximum-price limit, which is the maximum amount of price difference between a contract purchased on the open market and the price of the contract at the point of expiry.

Price limits are generally intended to provide a degree of stability and predictability to the futures markets, while also protecting investors from dramatic losses. Limiting the amount of price swings in a given period of time prevents absurd trading scenarios, such as a security or commodity which trades at extremely high or low prices overnight because of a single large order. Price limits can also reduce the amount of market manipulation and market games related to futures contracts, such as spoofing and wash trades.

In practice, price limits can either be set by exchanges or by the Commodity Futures Trading Commission (CFTC). In addition to setting hard price limits, exchanges can also provide ‘soft’ limits, which allow for more flexibility in the market. For example, the CFTC is empowered to extend price limits in case of ’emergency’ market events,[1] such as extreme weather conditions which may adversely affect a commodity’s supply and demand balances.

In conclusion, price limits are important rules governing the futures markets, as they help to protect investors and establish a level of predictability to price movements. They are often set in emergency situations to protect the futures markets from extreme volatility, while their primary purpose is to limit the level of risk and manipulation inherent in futures trading.