FIA has submitted comments on the second reading draft of the “Futures and Derivatives Law of the People’s Republic of China” (the “Futures and Derivatives Law”) to the Standing Committee of the 13th National People's Congress. FIA congratulates the NPC on the publication of the second reading draft of the Futures and Derivatives Law which is a key step in establishing a robust legal framework for China's futures and derivatives markets.
FIA is extremely encouraged to see that many of its key observations on the first reading draft have been reflected in the second reading draft. These include:
- confirming settlement finality for futures transactions, ensuring that a cleared futures transaction will be final and conclusive and not liable to be set aside in any bankruptcy proceeding;
- extending settlement finality protection to the bankruptcy of futures clearing institutions;
- and extending protections for futures clearing, such as for settlement finality and collateral enforcement, to central clearing of derivatives transactions.
FIA strongly believes that by taking on board these critical changes, the Futures and Derivatives Law will provide comprehensive protections for futures and derivatives transactions in China and will lay a solid foundation for the ever-growing Chinese financial markets.
FIA has also offered some observations and considerations for policymakers in China, including:
- Finality – with the finality concept being a cornerstone for a robust clearing system, FIA strongly suggests that all material aspects of both futures and derivatives clearing and settlement should benefit from express finality protections.
- Client clearing for futures transactions and derivatives transactions – FIA suggests that settlement between a clearing participant and its clients should also be protected for settlement finality.
- Close-out netting between clearing participants and clients – FIA requests that recognition for close-out netting arrangements be extended to cover close-out netting between a clearing participant and its clients notwithstanding the bankruptcy of any client of the clearing participant.
- Regulatory Deference – FIA respectfully suggests that policymakers in China consider applying a “substituted compliance” principle when regulating cross-border activities.
FIA looks forward to the publication of the Futures and Derivatives Law, which will be a key milestone in the history of futures legislation in China and a fundamental step towards the establishment of a sound and comprehensive legal framework for China's futures and derivatives markets.
FIA would like to thank the China Securities Regulatory Commission once again for its continued advice, guidance, and insight.
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