Hedging with LSFO futures requires prior approval from 

INE. If a trader believes that the regular position limit is 

too tight to meet its hedging needs, it may apply to INE 

for a hedging quota. INE determines and approves such 

quotas based on two factors: the applicant’s bona fide 

production, trading, and consumption volume of physicals, 

and market conditions. An applicant shall submit the 

necessary supporting materials, such as its production 

plan, sales contract, or processing plan.

When a futures contract enters the nearby delivery 

months, INE will convert the hedging quota for regular 

months to hedging quota for nearby delivery months. 

Given market risk control in nearby delivery months, the 

adjusted quota after conversion will be the lower one of 

the previously approved hedging quota for regular months 

and the general position limit for the contract in nearby 

delivery months. If the adjusted quota is still not sufficient 

to cover its hedging needs, the trader may separately 

apply to INE for a higher hedging quota for nearby 

delivery months.

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