Karl Zhang and Teresa Huang
On April 20, 2022, the Standing Committee of the National People’s Congress adopted the Futures and Derivatives Law of the People’s Republic of China (hereinafter, the “Law”), which will come into force on August 1, 2022. The Law is highlighted as follows:
I. General Provisions
For the scope of application of this Law, domestic futures trading and derivatives trading and related activities shall be governed by this Law, and offshore futures trading and derivatives trading and related activities that disrupt the order of the domestic market and harm the legitimate rights and interests of domestic traders may also be handled with legal liability pursued in accordance with the relevant provisions of this Law.
This Law also defines futures trading, derivatives trading, futures contracts, options contracts, swap contracts, forward contracts, hedging, etc.
The futures supervision and administration authority under the State Council shall exercise centralized and unified supervision and administration of the futures markets nationwide in accordance with law. The derivatives market shall be supervised and regulated by the futures supervision and administration authority under the State Council or by an agency authorized by the State Council according to the division of responsibilities to conduct supervision and administration.
II. Basic trading system
(1) Futures trading
Futures trading shall be conducted in the futures trading venues established by law, and futures trading outside the futures trading venues is prohibited. The listing of futures contract varieties and standard options contract varieties shall comply with the requirements of the futures supervision and administration authority under the State Council and be registered. Futures contract varieties and standard option contract varieties shall have economic value, shall not be easily manipulated, and shall be aligned with the public interest of society.
Futures trading in futures trading venues should be conducted by members of the futures trading venues or other participants required by the futures supervision and administration authority under the State Council. If traders retain a futures institution to trade, the trading orders may be issued in writing or by telephone, self-service terminals, networks, and other means. A real-name account system, margin system, position limit system, and a system where the actual control relationship of traders is reported and managed are implemented for futures trading.
(2) Derivatives trading
Derivatives trading may be conducted by agreement or through other trading methods prescribed by the State Council. Venues set up in accordance with law may organize and carry out derivatives trading with the approval of the agency authorized by the State Council or by the futures supervision and administration authority under the State Council. Financial institutions seeking to carry out derivatives trading business shall be approved pursuant to law, fulfill the obligations of trader suitability management, and comply with the relevant supervisory and administrative requirements of the state.
(3) Prohibition of insider trading
Those who are aware of insider information on futures trading and derivatives trading and those who illegally obtain insider information shall not engage in relevant futures trading or derivatives trading before the insider information is disclosed; expressly or implicitly suggest to others to engage in relevant futures trading or derivatives trading related to the insider information; or disclose the insider information.
III. Supervision, administration, and legal liability
The futures supervision and administration authority under the State Council may set up dispatch agencies based on needs in conducting supervision and administration of the futures market pursuant to law and shall perform its supervisory and administrative duty according to its mandate.
Manipulation of the futures market or derivatives market, insider trading, market disruption, and other illegal acts causing violation of the provisions of this Law may be subject to demanded rectification, confiscation of illegal proceeds, a fine of 10 times the illegal proceeds, or RMB 10 million, and other legal liabilities. If a crime is constituted, the criminal liability shall also be pursued in accordance with law.
In addition to the main contents mentioned above, this Law also contains detailed provisions on futures settlement and delivery, futures traders, futures operators, futures trading venues, futures settlement institutions, futures service institutions, futures industry associations, cross-border transactions, and regulatory collaboration.