Detailed interpretation of the four characteristics of the "Futures Law of the People's Republic of China (Draft)".
On April 29, the Standing Committee of the National People’s Congress announced the "Futures Law of the People’s Republic of China (Draft)" (hereinafter referred to as the draft) to collect comments and suggestions on revisions and improvements from the public. The public can directly log on to the China National People’s Congress website (www.npc.gov.cn) to submit comments, or send them to the Legislative Affairs Committee of the Standing Committee of the National People's Congress (the envelope should indicate comments for the draft futures law). The deadline for comments is May 28, 2021. As a result, the text of this bill that has an important impact on the national economy finally came out for the first time.
The draft 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.
The development of the futures market has been elevated to the height of the national strategy.
Article 1 of the draft proposes that this law was enacted to regulate futures transactions and other derivatives transactions, protect the legitimate rights and interests of all parties, maintain market order and social public interests, promote futures markets and other derivatives markets to serve the national economy, prevent and resolve financial risks, and safeguard the country Economic security, enact this law.
Article 4 of the draft proposes that the state supports the development of the futures market, 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, and improve the function of the market to discover prices, manage risks, and allocate resources; the state encourages the use of futures markets and other derivatives markets to engage in risk management activities such as hedging; the state takes measures to promote agricultural products futures markets and other derivatives market development to guide the production and operation of domestic agricultural products.
Industry experts said that the draft will elevate the development of the futures market to the level of national strategy, and people working in the futures market are greatly encouraged and excited. Serving the national economy, preventing and dissolving financial risks, and maintaining national economic security have become the ultimate goal of the development of the futures market. A series of words such as "support the development of the futures market", "encourage" and "adopt measures to promote" fully affirm the development of the current futures market.
Experts believe 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.
Clarify the legal boundaries of futures.
Article 3 of the draft clarifies that the term "futures" in this law refers to a standardized contract that is uniformly formulated by a futures trading venue to deliver a certain amount of subject matter at a specific time and place in the future; the term "other derivatives" in this law refers to non-standardized forward delivery contracts whose value depends on changes in the value of the subject matter, including non-standardized option contracts, swap contracts and forward contracts.
Article 7 of the draft clarifies that the futures regulatory agency of the State Council implements centralized and unified supervision and management of the national futures market in accordance with the law. Interest rate and exchange rate futures shall be separately prescribed by the State Council in accordance with the law; other derivatives markets shall be supervised and managed by the department authorized by the State Council.
A legal expert who did not want to be named told the Futures Daily reporter that for a long time, due to the extensive extension of the futures market, the corresponding spot market basically covers important areas of the national economy such as agriculture, metals, energy, chemicals, and finance. The draft clarifies the legal boundaries of futures and solves the primary difficulty in the formulation of the futures law.
Proposed listing registration system for various futures products.
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.
Introduce mediation and class action system.
Article 61 of the draft clarifies that in the event of a dispute between a trader and a futures business institution, both parties can apply to industry associations for mediation. Where an ordinary trader has a futures business dispute with a futures business institution and requests for mediation, the futures business institution shall not refuse.
The second and third paragraphs of Article 62 of the draft clarify the class action system for traders.
The Futures Research Institute, believes that the introduction of mediation and class action systems is conducive to the protection of investors in the futures market and is also a systematic arrangement for docking with the new securities law class action system.
Reserve space for the development of futures companies.
The first paragraph of Article 68 of the draft stipulates that, after approval, futures companies can engage in the following futures businesses: (1) futures brokerage; (2) futures investment consulting; (3) futures market-making transactions; (4) other futures businesses. Futures companies engaging in other businesses such as asset management and other derivatives transactions shall be subject to the approval of the futures regulatory agency of the State Council.
Compared with the regulations, the draft clarifies the market-making business of futures companies, and deletes the content that ‘No futures company may engage in or disguisedly engage in self-operating futures business.’ in the regulations, and clarifies that futures companies engaged in other businesses should be approved by the futures regulatory agency of the State Council. This has reserved space for future business innovations of futures companies.
Members enjoy the property accumulation rights of futures exchanges.
Article 92 of the draft clarifies that the property accumulation of a futures exchange that implements a membership system belongs to the members, and its rights and interests are shared by the members. During its existence, the property accumulation may not be distributed to members.
Compared with the regulations, the draft deletes the content of "the futures exchange is not for profit."
The draft has four major characteristics.
Zhisheng Xue, a professor at School of Law of Tiangong University , told the Futures Daily reporter that the draft has the following four characteristics:
One is systemic. It is mainly embodied in the draft system and structure, centering on the purpose of legislation, according to transaction behavior - market subject - main line of legal responsibility successively. With horizontal and vertical (supervision) are intertwined, the structure is complete, dynamically and statically combined, and self-contained.
The second is innovation. The draft is not a simple upgraded version of the regulations. There are many innovations in the style and content. For example, the inclusion of over-the-counter derivatives transactions and the establishment of a special chapter to stipulate "other derivatives transactions" are conducive to building a unified financial derivatives market in my country. In terms of the scope of legal validity, the principle of "long-arm jurisdiction" is introduced for reference to the securities law; in terms of settlement, the central counterparty system is clearly incorporated into the futures settlement system.
The third is openness. On the one hand, it is reflected in the integration of futures trading rules with international standards, and on the other hand, it is concentrated in the establishment of a special chapter "Cross-Border Jurisdiction and Cooperation", which provides more comprehensive regulations on overseas futures trading.
The fourth is strictness. It is mainly reflected in the strictness of futures supervision and the comprehensive and increased related legal responsibilities, which is conducive to protecting investors in the futures market and maintaining the safe operation of the futures market.
Xinhua Liu, 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 difficult institutional obstacles and builds a futures market operating system that conforms to international practices.
草案第四条提出，国家支持期货市场发展，建立适应期货交易特征，便利自然人、法人和非法人组织参与，促进期货市场发展的会计、审计、税收、国有资产管理、外汇管理等制度，发挥期货市场发现价格、管理风险、配置资源的功能；国家鼓励利用期货市场和其他衍生品市场从事套期保值等风险管理活动；国家采取措施推动农产品(5.870, 0.03, 0.51%)期货市场和其他衍生品市场发展，引导国内农产品生产经营。