Interpretation of the highlights of the draft of the "Futures Law"; the development of the futures market has been elevated to the height of the national strategy.
After a lapse of eight years, our country's "Futures Law" legislation has ushered in significant progress. On April 26, 2021, the draft of the "Futures Law" was submitted to the 28th meeting of the 13th National People's Congress for the first deliberation, and publicly solicited opinions on April 30. This is the first time that our country has specifically legislated to regulate and promote the healthy development of the futures market, and it is also the proper meaning of the issue of the development and reform of the financial market.
This draft of the "Futures Law" has 14 chapters and 173 articles. Compared with the current "Futures Trading Management Regulations" (hereinafter referred to as the Regulations), which has a total of 8 chapters and 86 articles, the draft adds 6 chapters in total including other derivatives transactions, futures settlement and delivery, futures traders, futures settlement institutions, futures service organization, and cross-border jurisdiction and cooperation. It has clearly stipulated and systematically improved systems such as over-the-counter derivatives supervision, the central counterparty positioning of settlement institutions, the investor class action system, the rights and obligations of futures service institutions, and two-way openness.
Special legislation to elevate the development of the futures market to a national strategy.
Since 1990, many economic functions of the futures market have been placed high hopes by the times, and such hopes have not changed until now. Through functions such as price discovery and risk management, the futures market plays an active role in promoting the circulation of production, consumption, and distribution, and serving the development of the real economy.
Since COVID-19, global financial markets have been volatile. Different from the stock market, the price of commodities has a strong global linkage and is directly related to the operation of the national economy. In the draft, a series of words such as "support the development of the futures market", "encourage" and "take measures to promote" are a full affirmation of the current development of the futures market. At present, in the face of rising global inflation expectations and accelerating exposure of financial risks, the construction and development of our country’s futures market has also entered a new period of development, that is, starting from the top-level design of the national strategy, "serving the national economy, preventing and dissolving financial risks, and maintaining national economic security" has become the ultimate goal of the development of the futures market.
Encourage innovation and enhance the ability of the futures market to serve the real economy.
In 2020, the trading volume of our country's futures market will reach 6.153 billion lots. Among them, the trading volume of commodity futures (excluding options) was 5.929 billion lots, ranking first in the world for 11 consecutive years. At present, our country has developed into the world's largest futures market for agricultural products, non-ferrous metals, coke, thermal coal and ferrous building materials, with 92 futures and options listed, covering major areas of the national economy.
On January 8, 2021, DCE officially listed live hog futures, which is our country's first live-body futures product. The launch of live hog futures, in addition to improving the market pricing mechanism and enhancing our country’s “right to speak” in the international hog trade, it also effectively complements feed futures to form a relatively complete agricultural product futures system covering major agricultural and livestock products, thereby further improving our country's agricultural industrialization level.
On the occasion of the 100th anniversary of the founding of the party, the number of futures and derivatives will also exceed 100. It is reported that the Shanghai Futures Exchange will promote the listing of futures products such as refined oil, natural gas, alumina, ferrochrome, and synthetic rubber, options products such as crude oil, silver, and rebar, as well as index products such as shipping index futures and non-ferrous metal index futures options; Zhengzhou Commodity Exchange will promote the listing of peanuts, chicken, steel billet, caustic soda, PX, bottle flakes and other varieties; Dalian Commodities Exchange will promote the listing of futures varieties such as dried chilli, ethanol, and container capacity; China Financial Futures Exchange will study the launch of new products such as 30-year treasury bond futures .
In addition, Guangzhou Futures Exchange is positioned to serve green finance. As the fifth domestic futures exchange, Guangzhou Futures Exchange is located at the forefront of reform and opening up and serves the Guangdong-Hong Kong-Macao Greater Bay Area. In addition to the first launch of commodity index futures, it will become a new bright spot in the future development of our country's futures market and will further optimize the spatial layout of my country's futures exchanges.
The two-way opening makes the futures company's business model usher in a transformation.
According to data released by the China Futures Association, as of the end of 2020, China's futures companies have total assets of 984.825 billion yuan and net assets of 135.001 billion yuan, and their capital strength has increased.
Few market participants and outstanding strategic position in the industry are the characteristics of the futures and derivatives market. This draft not only upgrades the "Administrative Regulations on Futures Trading", but also has more innovations in style and content. For example, the inclusion of over-the-counter derivatives trading and the establishment of a special chapter stipulating "other derivatives trading" will help build a unified financial derivatives market; in terms of the scope of legal validity, the principle of "long-arm jurisdiction" is introduced by referring to the securities law; in terms of settlement, the central counterparty system is clearly incorporated into the futures settlement system.
As the futures law will complement the last piece of capital market legislation, the business model of futures companies will also undergo a transformation. According to data from the Futures Industry Association, as of the end of March 2021, our country has 150 futures companies with 90 risk management subsidiaries, 10 asset management subsidiaries, and industry net assets of 139.4 billion yuan.
Previously, the "Administrative Regulations on Futures Trading" stipulated that futures companies could only engage in brokerage, investment consulting, and other futures businesses prescribed by the futures regulatory agency of the State Council, and their business activities were strictly restricted. Through the formulation of the Futures Law, it is expected to further broaden the breadth and depth of futures operating institutions' services to the real economy, and provide development space for futures operating institutions to explore new business models and operating concepts. The consolidation of the legal foundation for state-owned enterprises to participate in the derivatives market will also further enrich the structure of investors in the futures market.
This draft of the "Futures Law" also creates a fair and orderly business environment for foreign investors to enter the Chinese market to carry out derivatives business, and creates better and more favorable conditions for the opening of our country's capital market. At the same time, the investor structure of the futures market will become more and more abundant, and the total volume of institutional investors will expand. This means that industrial customers will be more active in using the futures market to carry out hedging, which in turn makes the structure of futures market participants more reasonable.