Three important points of the futures law draft are worthy of attention
The 28th meeting of the Standing Committee of the 13th National People's Congress recently reviewed the draft of the Futures Law in groups. The draft has 14 chapters and 173 articles. Judging from the content of the draft, the futures law draft adheres to the concepts of marketization, rule of law, and internationalization.
——Marketization: Proposing a system for registration of varieties on the market
The legal nature and basic positioning of the futures market and other derivatives markets are generally the same. The two are deeply integrated, complementary in function, and closely connected, and they jointly serve the national economy.
The draft provides unified regulations on futures and other derivatives, futures companies and other financial institutions engaged in futures business, venues for organizing futures trading and settlement, and other venues for organizing derivatives trading and settlement. The draft establishes a special chapter to provide principled provisions for other derivatives markets, and authorizes the State Council to formulate regulations on other derivatives markets to provide legal protection for the standardized development of other derivatives markets.
Member Yang Zhijin said that the formulation of the futures law conforms to the new requirements under the new situation and helps to consolidate the legal basis for the stable operation of the financial system. It is an extremely necessary legislative measure. In particular, the scope of legislative adjustments, including standardized futures transactions and non-standardized other derivative transactions, is very much in line with the actual needs of the market and regulatory requirements.
The draft draws on the experience of the Securities Law on the reform of the registration system for securities issuance. Variety listing is changed from a parallel approval model to a variety listing mechanism that implements application for trading venues and registration by the Securities Regulatory Commission. It stipulates in principle the basic conditions for variety listing and optimizes the variety listing procedure.
The draft clarifies that the state supports the development of the futures market and establishes accounting, auditing, taxation, state-owned asset management, foreign exchange management and other systems that adapt to the characteristics of futures trading, facilitate the participation of natural persons, legal persons, and unincorporated organizations, and promote the development of the futures market. The state encourages the use of futures markets and other derivatives markets to engage in risk management activities such as hedging.
——The rule of law: both promoting development and preventing risks
The futures market is a risk-management market, and we must prevent and control our own risks, and firmly hold the bottom line of preventing systemic risks.
The draft will pay equal attention to development and risk prevention, and make arrangements for the entire chain of risk prevention and control in terms of trading mechanism, monitoring and control, and supervision and management; it is clear that futures trading shall implement centralized trading, margin trading, position limits, no-liability settlement on the day, and forced liquidation by insufficient margin. Warehouse and other systems, standardize procedural transactions, strengthen account management, clarify the procedures for the settlement of defaults, and establish the principles of bankruptcy protection for margin and related properties.
Member Luo Baoming said that in order to ensure the effectiveness and safety of futures trading, a unique risk control system has been created in the futures field. The formulation of the futures law can fix the effective risk control system in the futures market in the form of law and improve its legal effect. The purpose is to better protect the security of the futures market and realize the long-term and healthy development of the futures market.
In terms of cracking down on illegal activities, the draft enriches the types of manipulation in the futures market, clarifies the constituent elements of insider trading in the futures market, severely cracks down on fabricating and disseminating false information, greatly increasing the amount of administrative fines and confiscated funds, and increasing the cost of number of illegal activities in the futures market. The draft comprehensively uses a variety of liability forms to improve the civil liability system in the futures market, and clarifies that if the perpetrator implements illegal acts that cause losses to traders, he shall bear civil liability, and adopt the principle of inverting the burden of proof under certain circumstances.
In addition, the draft futures law divides traders into professional traders and ordinary traders, and implements a trader suitability system for ordinary traders to participate in futures trading. Member Luo Baoming said that enacting a futures law is necessary to protect the legitimate rights and interests of futures traders. The formulation of the futures law can balance the rights and obligations of different entities, reasonably set the legal responsibilities of related entities, and effectively protect the legitimate rights and interests of futures traders.
——Internationalization: Provide legal protection for the futures market to expand and open to the outside world
Taking the prices of major futures markets as the trading benchmark is an important feature of international bulk commodity trade. The "law of one price" in the futures market determines that the international nature of the futures law is stronger. It is necessary to legally open the futures market to the outside world and cross-border supervision. Wait to make arrangements.
The draft futures law stipulates that overseas futures trading venues, futures operating institutions, etc. provide services to the country, as well as the code of conduct that domestic and foreign traders should comply with in cross-border transactions, and strive to build a market interconnection system; stipulates that the futures regulatory agency of the State Council can establish a cross-border supervision cooperation mechanism with overseas regulatory agencies to conduct cross-border supervision and management. The draft also establishes the validity of the application outside the law of futures, and stipulates that this law shall be applied to those who engage in futures transactions or other derivative transactions and related activities overseas, disrupt the order of the domestic market, or damage the legitimate rights and interests of domestic traders.
Liu Xinhua, vice chairman of the Committee of Finance and Economics of the National People’s Congress, believes that the draft futures law not only maintains fair and market interconnection arrangements in terms of “bringing in” and “going out,” it also eliminates long-term and difficult-to-resolve institutional obstacles，builds futures market operation system that in line with the internationally customary.