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SCMP Reporter

AS trading on plywood futures resumes today, the Shanghai Commodity Exchange intends to get brokers to halve their positions within two days.

   Under pressure from the national securities and futures watchdog to avert a potential calamity, the exchange convened a special meeting last night with members to seek their co-operation in pushing through the proposal.

  This was the second time in 10 days that the exchange had called a meeting to try and dampen the speculative fever in Contract 9511, which expires on November 15.

  'There is enormous pressure from the top [authorities in Beijing] to ensure that the exchange has things under control,' a broker said.

  The watchdog China Securities Regulatory Commission has kept in close touch with the exchange since signs of over-speculation emerged at the end of last month.

  Industry sources said the commission had approved the exchange's proposal for members to cut their positions on Contract 9511, from 1.41 million lots to about 700,000 lots, through competitive bidding by tomorrow.

  Each lot comprises 200 sheets of plywood.

  Yao Gang, a deputy director of the commission's futures department, was said to have been in Shanghai recently to work out risk-control measures with senior exchange officials.

  By the morning session on September 29, investors and speculators had built up positions of 1.5 million lots on 9511, representing an interest in 300 million sheets of plywood. The actual supply was 40 million.

  An emergency meeting of the exchange on that day succeeded in getting members to bring their holdings down by about 100,000 lots to 1.41 million by the close.

  Trading should have resumed last Wednesday after the exchange closed on September 30 for the National Day holiday, but it was suspended until today in an attempt to cool wild speculation.

  'The current positions are still regarded as very high, and could go up when trading resumes today if nothing is done to limit brokers building up their holdings,' an analyst said.

  The commission and the exchange fear another futures scandal, because this would give critics of the industry a good reason to urge suspension of trading across the board.

  'You will not only see heads roll if another scandal breaks out, but also hard questions being asked about the role of the futures industry in China,' the analyst said.

  The Shanghai Stock Exchange recently lost its general manager, Wei Wenyuan, after a treasury bond futures fiasco hit the exchange in February.

  A second scandal, although on a smaller scale, took place in May, providing ammunition to the critics to urge a closure of bond futures trading, which was done on May 17.



Shanghai in bid to avert new disaster