The law will stipulate rules for futures trading, settlement and delivery systems, establish investor protection mechanisms, and include netting provisions.
Chinese lawmakers on Monday (26 April) started deliberating a draft on the country’s first futures law to regulate and foster the sound development of the futures market, reports Xinhua.
The draft was submitted at the ongoing four-day session of the Standing Committee of the NPC (National People’s Congress) for review and revision.
The draft law 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 will stipulate rules for futures trading, settlement and delivery systems, as well as establish related mechanisms to protect the rights and interests of futures traders.
It will also regulate how institutions dedicated to futures operation, trading, settlement and services are operated, and clarify how the futures market is supervised and managed – including provisions to ban illicit acts such as insider trading, market manipulation, and the fabrication and circulation of false or misleading information.
The law will define the legal status of market participants, basic legal relationships and liability, supervision of the OTC market, market entry rules and cross-border supervision.
The draft 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 law was originally designed to target futures; however following the collapse of oil prices last year which left investors nursing USD 1.4 billion of losses, regulators decided to add rules for other derivatives, according to Caixin.
China currently has 70 types of futures (12 of which were launched last year) and 22 types of options in its derivatives market. This includes four futures and eight options contracts on commodities.
In 2020, total turnover in China’s futures market amounted to CNY 437.5 trillion (USD 67.5 trillion), up about 50 percent from the previous year, China Daily notes.
China accounted for 13.2 percent of the total futures trading value in the world last year. It has led the world in commodities futures trading value for 11 years running.