Losses for Chinese investors in oil price futures

A mainland investor lost 9.2 million yuan, or $1.3 million, after buying 20,000 crude oil futures contracts

by Nadeem Xu
Losses for Chinese investors in oil price futures
The Bank of China Tower in Central on Hong Kong Island. Photo: Google Maps

(ATF) Bank of China Ltd, a Hong Kong-listed Chinese bank, has been slammed by mainland investors for launching an oil price futures product that led to them suffering huge losses after the sudden drop of United States crude oil prices.

The bank said in a statement on Wednesday evening that its main investors would settle trades for its crude oil futures trading product at -US$37.63 per barrel, which was based on the trading price quoted by the Chicago Mercantile Exchange (CME) on Monday, US time. It emphasized that the negative settlement price was not a systemic error. 

Some individual investors claimed the Bank of China’s futures product, called Yuanyou Bao or literally “crude oil treasure,” contained some defects and unclear trading rules, while the bank failed to manage the potential risk. They complained that the bank did not follow its peers’ practice of completing the position transfer a week or 10 days before the last trading day of the front-month contracts, but only completed it just before the last trading day.

A screenshot of a receipt showing how a Chinese investor suffered a huge loss in Yuanyou Bao was widely circulated in China. The investor bought 20,000 crude oil futures contracts for 3.88 million yuan (US$540,000), or $27 per contract, but was forced to close positions at -US$37.63 per contract on Wednesday in China’s time zone. The investor lost all his 3.88 million yuan and owes the Bank of China another 5.32 million yuan. 

The loss was recorded after the US WTI futures collapsed below US$0 a barrel on Monday for the first time because of oversupply in the markets caused by the coronavirus pandemic. Futures decreased to -US$37.63 a barrel.

The Bank of China suspended trading in its US crude oil contract products for a day on Tuesday. It said on Wednesday that the one-day trading suspension did not affect its clients’ rights.

A netizen said in a Weibo post on Wednesday that he was helping a group of victims to file a class action against the Bank of China.