China Consults on Expanded Scope of Futures Law

The revised draft expands the scope of the law to also cover “other derivatives”, while also raising penalties for violations.

China is consulting on draft revisions to the proposed Futures Law, expanding the scope of the legislation and raising penalties for violations.

Last week, the Standing Committee of the NPC (National People’s Congress) started deliberating a draft on the futures law, which is expected to improve the functioning of China’s futures market, promote a more market-based allocation of resources, safeguard against financial risk, and align the regulatory framework with international norms.

The draft stipulates rules for futures trading, settlement and delivery systems, while also establishing related mechanisms to protect the rights and interests of futures traders.

It also regulates how institutions dedicated to futures operation, trading, settlement and services are operated, clarifies how the futures market is supervised and managed, and includes provisions to ban illicit acts such as insider trading and market manipulation.

The draft also has clear provisions on close-out netting and performance guarantees, issues which foreign financial institutions have long sought clarity on in terms of legal certainty and judicial recognition.

The new draft also raises the size of the penalties for violations:

  • Market manipulation: penalties up to CNY 10 million (CNY 5 million for directly responsible supervisors/personnel)
  • Insider trading: penalties up to CNY 5 million (CNY 2 million for directly responsible supervisors/personnel)
  • Disrupting orderly trading with programmatic trading: penalties up to CNY 5 million (CNY 1 million for directly responsible supervisors/personnel)
  • Dissemination of false/misleading information to disrupt the market: penalties up to CNY 2 million (CNY 2 million for directly responsible supervisors/personnel)

The draft makes different supervision arrangements for different kinds of futures, Caixin notes. The futures regulator under the State Council shall exercise supervision the national futures market, but supervision over interest rate and exchange rate futures shall be separately prescribed by the State Council. Other derivative markets shall be supervised by department authorised by the State Council.

The consultation, available here, is open for comment until 28 May.

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