The Financial Supervisory Commission (hereinafter, the “FSC”) issued the Jin-Guan-Zheng-Qi-1050014894 Circular of May 25, 2016 (hereinafter, the “Circular”) to ease restrictions on the proprietary trading business of futures commission and allow self-owned funds to be operated by futures management enterprises through discretionary services. This Circular came into force on the day of its issuance.
The Circular first points out that futures transactions announced by the FSC under Article 5 of the Futures Trading Law and engaged by entities that operate exclusively as futures commission merchants in accordance with Article 23, Subparagraph 4 of the Regulations Governing Futures Commission Merchants, proprietary futures trading business concurrently operated by securities firms and foreign futures transactions engaged by entities that operate exclusively as futures commission merchants in accordance with Article 53-1 of the Regulations Governing Futures Commission Merchants may be trusted to futures management enterprises on a discretionary basis.
This Circular also points out that when engaging in futures transactions, a futures management enterprise entrusted by futures commission merchants on a discretionary basis is required to follow the specific requirements highlighted in the Circular. They include: (1) the ceiling of the mandated fund; (2) the selection restrictions on the mandated futures management enterprises; (3) guidelines for discretionary services covering the criteria, risk measurement, control measures and operating procedures for selecting mandated futures management enterprises on a discretionary basis should be formulated and specifically included in the internal control system and should be implemented after being approved by the board of directors; (4) personnel shall be allocated to monitor if a mandated futures management enterprise follow the discretionary service contract when conducting transactions, and the performance of mandated management and the issue of whether the risks so assumed fall within the scope of tolerance should be regularly assessed with the evaluation results reported to the board of directors at least on a quarterly basis, (5) if discretionary services of futures management enterprises within the same group are engaged, this matter should be handled under the principles of fairness, reasonableness and credibility without any non-arm’s length transactions and without covering up or manipulating financial reports through discretionary services, and (6) the internal audit unit is required to include the above requirements as part of its annual audit program and prepare an audit report accordingly.