Legal Regulation of Exchange Trade in Oil and Petroleum Products in the People’s Republic of China

For a long period of time, the Chinese Government has adopted the issue of arrangements for trade in oil futures. On March 26, 2018, trade in oil futures was organized at the Shanghai Energy Exchange for the first time. The experience of legal regulation of trade in oil futures in China is of particular interest to our country. In the first place this is due to the fact that Russia and China are important strategic partners. In 2017, China overtook the USA and became a major importer of oil in the world: the volume of purchases amounted to about 8.43 million barrels per day. The article investigates the peculiarities of legal regulation of exchange trade in oil and petroleum products in China. It considers the requirements for the bidders and discloses the rights and obligations of the bidders, the conditions of work of their personnel in the exchange trading. The list of documents that must be submitted by the bidder to participate in the exchange trade in oil and petroleum products is given. Basic requirements to a standard futures contract for supply of crude oil are reviewed.

Keywords

energy law, legal regulation of exchange trade in oil and petroleum products, requirements to the bidders, oil futures

Received

11.06.2019

Publication date

01.09.2019

Number of characters

18138

Cite Download pdf

GOST	Shakerov R. Legal Regulation of Exchange Trade in Oil and Petroleum Products in the People’s Republic of China // Energy law forum – 2019. – Issue 3 C. 75-78 [Electronic resource]. URL: https://mlcjournal.ru/S231243500022154-7-1 (circulation date: 05.05.2024). DOI: 10.18572/2410-4396-2019-3-103-107
MLA	Shakerov, Rustam R "Legal Regulation of Exchange Trade in Oil and Petroleum Products in the People’s Republic of China." Energy law forum 3 (2019):75-78. DOI: 10.18572/2410-4396-2019-3-103-107
APA	Shakerov R. (2019). Legal Regulation of Exchange Trade in Oil and Petroleum Products in the People’s Republic of China. Energy law forum (3), pp.75-78 DOI: 10.18572/2410-4396-2019-3-103-107


1	One of the most interesting experiences in exchange trade in oil and petroleum products is trade organized in the People’s Republic of China (PRC), where this practice, just like in Russia, has only just begun to develop. However, as compared to Russia, the Chinese exchange actively becomes one of the world leading exchanges in terms of exchange trade in oil and petroleum products. Its main difference from other exchanges is implementation of exchange trade in national currency, which contributes to its strengthening in the international market as well as the detailed legal regulation of the process of exchange trade in oil and petroleum products.
2	The launch of the first Chinese oil futures contract in Shanghai promoted creation of a benchmark for the global oil sector. [1] In just six months, the trading volume of Shanghai oil futures in Yuan has already exceeded the volume of the oil contract at the Dubai Mercantile Exchange, which was previously the third most popular oil benchmark in the world. At the end of September 2018, the contracts traded at the Shanghai International Energy Exchange accounted for 16% of the global market of shortterm oil futures, herewith, trading volumes 49 times exceeded sales in Dubai, according to data compiled by Gavekal Research. As of April 1, 2019, the total trading volume of crude oil futures contracts at the Exchange amounted to 36.7 million lots with a turnover of 17.12 trillion Yuan (2.55 trillion dollars).
3	Urals medium sour crude oil was chosen as the major product. The Chinese Government explains this by the fact that the resources of medium sour crude oil are quite abundant. Its production amounts to about 44% of the total world volume. [2]
4	However, the ratio of supply and demand for medium sour crude oil is not quite the same as the ratio for WTI oil. Moreover, it is a major product imported by China and many other neighboring countries. According to statistics of the General Administration of Customs, in 2016, China imported 381 million tons of crude oil, of which 183 million tons were attributable to the Middle East (49% of the total volume). Therefore, it was decided to trade in crude oil in order to form a reference price for medium sour crude oil.
5	For many years, the PRC has been developing laws on exchange trade in oil and petroleum products prior to introduction of this practice. Thus, the experience of the PRC is interesting for study, which also indicates the relevance of the chosen topic.
6	The sale and purchase of oil and petroleum products (petrol and Euro-5 diesel account for a dominant share of petroleum products) in the PRC commenced on March 26, 2018, at the Shanghai International Energy Exchange through trade in oil futures. Preparation and adoption of a decision by the Government of the PRC on the arrangements for trade in oil futures took more than 20 years. It should be emphasized once again that this period is the time, during which not only a decision on trade was made, but also the legal regulation of exchange trade in oil and petroleum products and the choice of the trading instrument itself were thoroughly considered.
7	Prior to this, futures contracts were mainly traded at the London, New York and Dubai exchanges. Despite the well-developed oil futures markets in Europe and the USA, their prices do not reflect the ratio of supply and demand in the Asia-Pacific Region in an objective and comprehensive way. This gave rise to the need to arrange for exchange trade in oil and petroleum products in the Asia-Pacific Region.
8	The Shanghai International Energy Exchange is a legal entity in the futures market, that is, an organization that develops Trading Rules for the Exchange, the requirements of which apply to all parties to exchange trading. The Rules developed by the Exchange comply with regulatory requirements of the China Securities Regulation Commission (the CSRC). The Shanghai International Energy Exchange was established by a number of public institutions, including the Shanghai Futures Exchange, and it is open for the members of the world’s futures. According to the Articles of Association, the Exchange performs its activities in accordance with the following regulatory legal acts of the PRC: [3] the Law of the PRC on Companies; the Law of the PRC on Securities; the Provisions on Arrangements for Trade in Futures.
9	As the organization, the Exchange fulfills its duties in accordance with the above laws. Based on the principles of openness, fairness and impartiality, the Exchange aims to create a global trading platform for derivative energy carriers, which “=is internationalized, focused on the market, governed by legislation and professionalism to objectively reflect the conditions of demand and offers at the stock market.
10	The authorized capital of the Exchange amounts to 5 billion Yuan. The legal representative of the Exchange is the Chairman of the Board of Directors. In accordance with the current laws, the Exchange shall: 1) provide space, facilities and services for trade in futures; 2) conclude contracts with the parties to exchange trading and draw their lists; 3) arrange for and control trade, clearing and delivery; 4) ensure and guarantee arrangements for trade in futures; 5) formulate and improve the rules and provisions, strengthen control over risks in trade in futures and supervision of the member states, overseas special participants (the OSPs) and personnel of the Exchange, and it strongly urges the member states to strengthen control of their trade activity; 6) formulate and ensure compliance with the General Rules of Trading at the Exchange; 7) publish market information; 8) perform marketing activities and ensure staff training; 9) regulate the futures business of the member states, foreign intermediaries, clients, designated storages, designated depository banks, and other players of the futures market; 10) investigate violations of the rules, and other functions.

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