FILE PHOTO: An employee watches molten iron pour into a container at a steel mill in Hefei, Anhui Province, on Sept. 9, 2013. REUTERS / Stringer
May 26, 2021
BEIJING (Reuters) – China’s banking regulator has urged lenders to stop selling investment products related to commodity futures to mom and pop buyers, three knowledgeable people told Reuters in an attempt to stem investment losses amid volatile commodity prices.
It has also asked lenders to fully wind down their existing books for these products they make and sell to individual investors, said the sources involved in and briefed on the decision.
The China Banking and Insurance Regulatory Commission (CBIRC) order to exit these products has not yet been reported. It issued the order this year, two of the sources said.
“The risk inherent in banks’ commodity-linked investments cannot be easily seen and borne by ordinary investors,” said one of the sources. “Banks also do not have enough expertise to operate such products properly.”
The sources spoke on condition of anonymity as the policy is not yet public. The CBIRC, China’s leading bank watchdog, did not immediately respond to a Reuters email asking for comments.
The move comes because commodity prices spiraling out of control in both onshore and offshore markets have raised regulatory concerns about the risks of speculative betting and have prompted China’s state planners and exchanges to take price control measures in recent weeks. Https://www.reuters.com/article / us-china-Commodities-idUSKCN2D60A2.
The CBIRC wants to prevent the same losses that the Bank of China (BoC) took a year ago on crude oil-linked investment products, People added.
Lenders, including the Industrial and Commercial Bank of China (ICBC), have been asked to report “remedial progress” on commodity-linked investment products to regulators on a monthly basis, two sources said.
However, the CBIRC has not given banks a specific deadline to exit their positions entirely, they added.
The ICBC did not immediately respond to a request for comment.
While the total size of such products in the Chinese banking system is unknown, BoC’s $ 1.8 billion losses tied only to US crude oil futures underscore the appeal of similar products to retail investors looking for higher returns .
CLEAN COMPLETE SECTOR
Regulators fear that mom and pop investors could be caught on fire again from the recent sharp swings in commodity prices on the pandemic recovery, liquidity easing and speculative trading. Government guards have urged Chinese industrial metals companies to maintain market order.
BoC’s losses last year had wiped out several thousand such small retail investor accounts, ranging from college students to retirees. This prompted the CBIRC at the time to urge commercial banks to stop reselling a wide range of commodity-related investment products in futures.
Given the recent price volatility, the prohibition on new sales has been extended to a full cleanup of the sector, which covers products associated with previously unspecified commodities like gold, silver, platinum, palladium, natural gas and soybeans, sources said.
The prices of most of these commodities have risen in recent months, while futures prices for iron ore and corn on the Dalian Commodity Exchange and steel and copper on the Shanghai Futures Exchange have hit record highs this year.
Some banks are considering ways to move some of their existing commodity-linked assets and clients to affiliated brokers, but doing so requires a nod from the securities regulator, one of the sources said.
While the banks’ derivative-like products have flaws in design and risk control, analysts mean that a rigorous sector-wide cleanup will mean a major setback in China’s plans to open the market.
Despite repeated vows to ramp up financial derivatives, Shanghai Futures Exchange has already stopped working with banks on introducing new derivatives products after the BoC’s losses, two separate sources told Reuters.
($ 1 = 6.3921 Chinese yuan)
(Reporting by Cheng Leng, Ryan Woo and Shanghai Newsroom; Editing by Sumeet Chatterjee and Himani Sarkar)
This article originally appeared on www.oann.com