Wuxi Dk Electronic Materials Co.Ltd(300842)
Feasibility analysis report on developing financial derivatives trading business
1、 Background and purpose of the company's financial derivatives trading business
The company involves foreign currency business in the daily operation process, and the main settlement currencies of import and export business are US dollar, Japanese yen, etc. Affected by international political, economic and other uncertain factors, the foreign exchange market fluctuates frequently. In order to effectively avoid the risk of the foreign exchange market, prevent the impact of large exchange rate fluctuations on the company's performance and lock in the exchange cost, the company appropriately selects the opportunity to carry out foreign exchange derivatives trading business according to the specific situation of production and operation; At the same time, the main raw material of the company's products is silver powder. In order to avoid the adverse impact of the sharp fluctuation of the silver price of raw materials used in production and operation on the company's operation and ensure the relatively stable operating performance, the company hedges through silver futures contracts, locks in costs by using reasonable financial tools, reduces risks and improves the company's competitiveness.
2、 Overview of the company's financial derivatives trading business
1. Transaction type
Foreign exchange derivatives such as forward foreign exchange settlement and sales, foreign exchange options, foreign exchange swaps and silver futures contracts provided by financial institutions.
2. Investment quota, term and authorization
The company and its subsidiaries intend to use their own funds to carry out foreign exchange derivatives transactions with a time point balance of no more than 2 billion yuan and silver futures contract transactions with an invested margin of no more than 50 million yuan. The above quota is valid for 12 months from the date of approval by the relevant general meeting of shareholders of the company, and can be recycled and used within the validity period. At the same time, the board of directors requested the general meeting of shareholders to authorize the chairman to approve the specific operation plan of the company's daily financial derivatives transactions within the limit and validity period, and sign relevant contracts and documents; The Finance Department of the company is responsible for the specific operation and management of derivatives trading business. The authorization shall be valid for 12 months from the date of approval by the general meeting of shareholders. For the basic management principles, approval authority, business management and operation process, information isolation, internal risk control measures and information disclosure of financial derivatives trading business, please refer to the relevant provisions of the company's financial derivatives trading business management system.
3. Counterparty
The counterparties of the financial derivatives trading business to be carried out by the company and its subsidiaries are financial institutions with stable operation, good credit and qualified for financial derivatives trading business, which have no relationship with the company.
4. Source of funds
The company's own funds do not directly or indirectly use the raised funds to engage in this business.
3、 The necessity and feasibility of the company's financial derivatives trading business
On the premise of fully ensuring the daily operational capital demand, not affecting normal business activities and effectively controlling risks, the company uses some of its own funds to carry out financial derivatives trading business, which is conducive to improving the company's ability to deal with foreign exchange fluctuation risks and preventing the adverse impact of exchange rate fluctuations on the company's operation; It is necessary to avoid the potential risks caused by the price fluctuation of raw materials to the company's production and operation, make full use of the hedging function of the futures market, lock the cost by using reasonable financial instruments, reduce the product cost fluctuation caused by product price fluctuation, ensure the relative stability of the company's business performance and improve the company's competitiveness.
The company's silver futures hedging business is limited to the futures traded in domestic futures exchanges, and the futures position does not exceed the spot demand for risk hedging; The scale of the company's foreign exchange derivatives trading business is consistent with the company's actual import and export business volume and the scale of foreign currency assets, and there is no speculative operation. The company has formulated the financial derivatives trading business management system in accordance with the requirements of relevant laws and regulations, and has formulated specific operation procedures for the company's financial derivatives trading business by strengthening internal control and implementing risk prevention measures, which is feasible.
4、 Risk analysis of the company's financial derivatives trading business
The company shall follow the principles of legality, prudence, safety and effectiveness in carrying out financial derivatives trading, and shall not carry out speculative and simple arbitrage transactions. However, there are still certain risks in financial derivatives trading, mainly including:
1. Market risk: when the silver futures market changes greatly, the company may not be able to buy or sell the contract at the required locked price or close the position at the predetermined price, resulting in losses; In the case of significant deviation between the exchange rate trend and the company's expectation, the cost incurred by the company after locking the exchange rate may exceed the cost incurred when it is not locked, resulting in potential losses.
2. Internal control risk: Silver futures hedging and foreign exchange derivatives trading business is highly professional and complex, which may cause risks due to imperfect internal control mechanism.
3. Default risk of customers or suppliers: during the product delivery cycle, due to the sharp fluctuation of silver powder price, customers take the initiative to default, resulting in losses in the company's silver futures trading; When the customer's accounts receivable are overdue, the payment for goods cannot be recovered within the predicted collection period. The payment for goods to suppliers or the repayment of foreign currency loans ahead of time will affect the company's cash flow, which may make the actual cash flow unable to fully match the term or amount of the operated foreign exchange risk hedging business, resulting in the company's loss.
4. Legal risk: the change of relevant laws or the violation of relevant legal systems by counterparties may lead to the failure of normal execution of the contract and bring losses to the company.
5. Default risk: the counterparty of silver futures hedging and foreign exchange derivatives defaults and fails to pay the company's profits as agreed, so it is unable to hedge the company's actual spot market losses and exchange losses, which will cause losses to the company.
6. Technical risk: from transaction to fund setting and risk control, to link with futures companies and banks, and the stability of internal system and transaction matching, there are risks that the transaction may not be concluded due to system crash, program error, information risk, communication failure, etc.
7. Capital risk: Silver futures hedge trading adopts margin and mark to market system, which may bring capital liquidity risk and the risk of loss caused by forced closing of positions without timely replenishment of margin.
5、 Risk control measures taken by the company
1. Clarify the trading principles of financial derivatives: the company's trading business of silver futures and foreign exchange derivatives must be based on normal production and operation, with the main purpose of avoiding and preventing the risk of raw material price fluctuation and exchange rate fluctuation, must match the company's actual business, shall not affect the company's normal production and operation, and shall not carry out transactions for the purpose of speculation. Therefore, strict risk control shall be carried out during the actual derivatives trading operation, and the company will formulate corresponding derivatives trading strategies according to the business scale and inventory quantity.
2. System construction: the company has established the financial derivatives trading business management system, which makes clear provisions on the basic principles, approval authorization, business management and operation process, information isolation, internal risk control measures and information disclosure of the company and its subsidiaries engaged in silver futures hedging and foreign exchange derivatives trading, so as to effectively regulate the trading behavior of financial derivatives, Control the transaction risk of financial derivatives.
3. Product selection: the company's silver futures hedging business is limited to the futures traded in domestic futures exchanges, and the futures position does not exceed the spot demand for risk hedging.
The company's foreign exchange derivatives transactions must be based on the actual production and operation business such as foreign currency bank borrowings, foreign currency collection forecast under export and foreign currency payment forecast under import. The foreign currency amount of the transaction contract shall not exceed the predicted amount of foreign currency collection or foreign currency payment. The delivery period of physical delivery of foreign exchange derivatives transactions shall match the payment period of the corresponding foreign currency bank loan, or the predicted foreign currency collection time or foreign currency payment time of the company;
4. Counterparty Management: the company only conducts silver futures hedging and foreign exchange derivatives trading with legally qualified futures companies, large commercial banks and other financial institutions. The company will carefully review the contract terms signed with the other party and strictly implement the risk management system to prevent credit risk and legal risk.
5. Hierarchical management: the company's finance department, internal audit department and business departments, as relevant responsible departments or units, have clear management positioning and responsibilities. Through hierarchical management, a supervision mechanism is formed, which fundamentally eliminates the risk of single person or separate department operation, and improves the response speed to risks on the premise of effective risk control.
6. Information disclosure: complete the information disclosure in strict accordance with the relevant provisions of Shenzhen Stock Exchange.
6、 Accounting policies and accounting principles
The company conducts corresponding accounting and accounting treatment for the proposed financial derivatives trading business in accordance with the relevant provisions and guidelines of the Ministry of finance, such as accounting standards for Business Enterprises No. 22 - recognition and measurement of financial instruments, accounting standards for Business Enterprises No. 37 - presentation of financial instruments, accounting standards for business enterprises No. 39 - fair value measurement, etc, And reflected in the relevant items of the balance sheet and income statement.
7、 Feasibility analysis conclusion of financial derivatives trading business carried out by the company
It is necessary for the company to carry out financial derivatives trading business in line with the company's daily business, and make full use of reasonable financial instruments to avoid or reduce the impact of raw material price fluctuation and exchange rate fluctuation risk on the company's performance. At the same time, the company has formulated the financial derivatives trading business management system, which has formulated specific operating procedures for the financial derivatives trading business. The targeted risk control measures taken are feasible and the trading business risk is controllable. The company's financial derivatives trading business is in line with the company's overall interests and long-term development, and there is no behavior damaging the interests of the company and shareholders.
Wuxi Dk Electronic Materials Co.Ltd(300842) board of directors January 21, 2022
