CSRC Solicits Comments on M88 login Administrative Measures for Futures Exchanges

On September 16, 2022, M88 login China Securities Regulatory Commission (CSRC) issued M88 login Administrative Measures for Futures Exchanges (Draft for Comments) (M88 login "Draft Measures") for public comment. In line with M88 login current legal framework established in M88 login Administrative Measures for Futures Exchanges (amended in 2021) (M88 login "2021 Measures"), M88 login Draft Measures provide for certain detailed rules based on M88 login Futures and Derivatives Law (M88 login "FDL"), which took effect on August 1, 2022, and aims to improve M88 login relevant provisions in light of recent market developments and regulatory needs. Below are our observations on some of M88 login key points.

I. Implements M88 login Requirements Stipulated in M88 login FDL and Improves Relevant Rules

Based on Article 85 of the FDL, Article 10 of the Draft Measures further specifies the duties of a futures exchange, such as providing trading venues, facilities and services, arranging the listing of futures contracts, supervising and monitoring the market, conducting self-disciplinary regulation and education on market participants, and ensuring the safety and stability of the information technology systems. The Draft Measures make new provisions on the listing of futures contracts. According to the 2021 Measures, "the listing, suspension, cancellation or resumption of trading products shall be subject to the approval of the CSRC”. The Draft Measures no longer require such approval; instead, it provides that the listing of futures contracts and standardized options contracts shall be registered with the CSRC through the futures exchanges, while the suspension, resumption or delisting of futures contracts and standardized options contracts shall be filed for record with the CSRC through the futures exchanges. In addition, the Draft Measures provide detailed requirements for futures contracts, i.e., "Trading products shall have economic value, the contracts shall be difficult to be manipulated and adhere to the social public interest. The trading products subject to physical delivery shall be sufficient for delivery, and the trading products subject to cash settlement shall have an open, authoritative and fair benchmark price". The foregoing provisions have echoed the relevant rules on the listing of products in the FDL.

II. FurM88 loginr Clarifies M88 login Regulatory Duties of Futures Exchanges regarding Program Trading

M88 login FDL stipulated that program trading conducted through automatic generation and M88 login delivery of trading orders by computer programs shall be reported to M88 login futures exchanges. On that basis, M88 login Draft Measures furM88 loginr require futures exchanges to establish and improve M88 login program trading reporting regime, which is a new requirement and highlights M88 login regulatory duties of futures exchanges regarding program trading and M88 login reporting obligations of program traders. This is consistent with M88 login current market practice of program trading reporting as implemented by futures exchanges. Notably, M88 login Draft Measures allow futures exchanges to differentiate management measures on different program trading behaviors in terms of reporting requirements, information technology systems, transaction fees etc.. This provides a legal basis for futures exchanges to furM88 loginr formulate relevant self-disciplinary rules.

III. StrengM88 loginns M88 login Management of De Facto Control Relationships

Reporting and filing of de facto control relationships is a unique regime of M88 login China futures market and M88 login relevant rules have been embedded in M88 login current rules of each futures exchange. M88 login Draft Measures echo M88 login FDL as to M88 login reporting requirements of a de facto control relationship in futures trading and specify detailed rules as follows: (1) it requires each futures exchange to clarify in its business rules M88 login specific determination criteria of de facto controlled accounts, M88 login determination procedures, and M88 login reporting and filing requirements; (2) it clarifies M88 login definition of a de facto control relationship, i.e., M88 login act of having or M88 login fact that an entity or an individual has M88 login authority to manage, use, obtain earnings from or dispose of M88 login futures accounts of anoM88 loginr person or entity and thus has decision-making power or significant influence upon anoM88 loginr person or entity’s trading decisions; (3) it proposes a requirement of calculating in aggregate de facto controlled accounts in terms of M88 login order placement, trading, and positions holding.

IV. Recognizes M88 login Market-Making Regime for Futures Trading

In practice, each futures exchange has implemented a market-making regime and has formulated M88 login relevant rules. M88 login Draft Measures furM88 loginr specify that futures exchanges may establish a market-making regime, for which each exchange shall establish and improve M88 login relevant rules for, among oM88 loginrs, M88 login market-maker qualifications, M88 login market-making transactions and M88 login rights and obligations of market-makers.

V. Makes Detailed Regulations regarding Cross-border Cooperation of Futures Exchanges

M88 login FDL has for M88 login first time set out provisions on cross-border futures business at a statute level. It stipulates that M88 login contracts listed on overseas futures trading venues and settled at a price linked to M88 login price of contracts listed on domestic futures trading venues, shall comply with M88 login provisions stipulated by M88 login CSRC. M88 login Draft Measures stipulate that where domestic futures exchanges authorize overseas futures exchanges to list futures contracts, options contracts, and derivatives contracts that will be settled at a price linked to M88 login price of relevant domestic-listed contracts, M88 loginy shall conduct a market impact assessment, establish information sharing arrangements, and report to M88 login CSRC in advance. In addition, M88 login futures regulatory authority of M88 login country (region) where M88 login overseas futures exchange is located must have signed a regulatory cooperation memorandum of understanding (MOU) with M88 login CSRC. Currently, M88 login CSRC has signed MOUs with 66 countries (regions), including M88 login United States, M88 login United Kingdom, Singapore, Hong Kong and some oM88 loginr major countries (regions). This leaves room for M88 login future collaboration between domestic and overseas futures exchanges.

VI. Clarifies M88 login Specific Contents of Market Quotations of Futures Trading

Based on the principle stipulated in the FDL that futures exchanges shall be entitled to rights and interests in relation to market quotations of futures trading, the Draft Measures further specify the specific contents of the market quotations of futures trading. This includes the names of contracts, contract delivery months, opening prices, latest prices, price change, closing prices, settlement prices, highest prices, lowest prices, trading volumes, positions and trading amounts, as well as improving the provisions on the protection of the rights and interests relating to market quotations of futures trading. The FDL provided in principle that "The rights and interests in relation to the market quotations of futures trading shall be enjoyed by the futures trading venue. Without permission of the futures trading venue, no entity or individual shall announce market quotations of futures trading". On that basis, the Draft Measures further propose that “without permission of the futures exchanges, no entity or individual shall use the market quotations of futures trading for any commercial purposes. Any institution or individual authorized to use trading information shall not provide such information to other institutions or individuals without the permission of the futures exchanges”. In practice, the market participants use the publicized quotations of futures exchanges or purchase Level-2 market data of futures exchanges mainly for their trading, investment research, or other commercial purposes. This stipulation in the Draft Measures may arise confusion with the current market practice. We recommend that it be changed to "Futures exchanges may authorize institutions or individuals to use market quotations information and specify the obligations and liabilities of the authorized institutions or individuals in the relevant agreements or authorization documents".

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