China Construction Bank bolsters safeguards to contain investor losses in commodities

SHANGHAI/BEIJING (Reuters) - China Construction Bank (CCB) announced new trading procedures for its commodities investment products on Monday, after regulators ordered banks to bolster their risk management protocols following broader industry losses for similar assets.

The CCB move comes in the wake of the coronavirus-driven extreme volatility in global commodity markets, leaving investors - including those at Bank of China - grappling with hefty losses.

In an online statement, CCB said it had upgraded systems for its commodities investment products on May 2 to prevent the risk of customer losses exceeding trade margins.

In view of current price and liquidity risks, CCB would also rollover contracts of some products based on market conditions to protect customer interests.

“To protect your rights and interests, when international commodity market prices approaches zero or when it is reasonable to expect a negative price, the bank will suspend all or part of the commodity account trading, and make adjustments on how to deal with contract expiration time and regulations,” the statement said.

Commodities investment products offered by banks in China to retail investors have come under scrutiny in recent weeks after a backlash that followed steep losses when Bank of China settled trades for its crude oil investment product at negative prices.

China Banking and Insurance Regulatory Commission (CBIRC), the nation’s banking regulator, said last week it had asked Bank of China to investigate problems related to its crude oil products.

Separately, in efforts to prevent systemic failure and curb financial risks, sources told Reuters the regulator has asked commercial banks to halt new sales of a wide range of wealth management products that might lead to unlimited losses for investors.

The commodities investment products are structured products made up of a bundle of futures contracts, and are linked to global commodity prices. When West Texas intermediate (WTI) oil futures prices fell to negative territory for the first time ever in April, many crude oil-linked products racked up major losses.

CCB had earlier suspended new positions for its crude oil trading product, and later extended the suspension to its copper and soybean products.

In Monday’s statement, it said automatic rollovers set by investors would not be executed for suspended contracts, and that the bank would close or settle positions based on prices in the international market.

“However, due to market liquidity factors, there may be no guarantee that the settlement price will be exactly the same as the market price when trading is suspended, there is also no guarantee that settlement price will be the same as the international market’s settlement price on the date of suspension,” CCB said.

Reporting by Emily Chow in Shanghai, Cheng Leng and Jing Xu in Beijing; Editing by Shri Navaratnam