Systemically important commodity futures in China

To depict the increasing interdependence of commodity prices and thus higher systemic risk under financialization, this paper investigates the risk spillover levels in the Chinese commodity futures market using the TENET model and directed acyclic graphs, based on which it innovatively identifies Systemically Important Commodity Futures (SICFs). This paper demonstrates the commodity financialization in China, and finds that agricultural futures are SICFs. This finding is robust across years, financial cycles, business cycles, and even other tail-dependence indicators. The paper provides several regulatory takeaways: Firstly, financialization has amplified price interconnections among commodity networks, elevating the probability of systemic risk. Accordingly, regulatory authorities should expand their oversight to include SICFs, in addition to the traditional Systemically Important Financial Institutions (SIFIs). Secondly, agricultural futures are identified as SICFs, underscoring the need for diligent monitoring and attention. Moreover, enhancing cross-border and cross-market risk coordination mechanisms is essential to mitigate systemic risk.