On April 21, 2023, m88 sport betting app China Securities Regulatory Commission (“CSRC”) issued m88 sport betting appAdministrative Provisions on Trading Server Colocation for m88 sport betting app Securities and Futures Markets (Consultation Paper)(m88 sport betting app “Administrative Provisions”). m88 sport betting app Administrative Provisions fill a legal gap with respect to securities and futures trading server colocation. It has been common market practice for securities or futures companies to lease cabinets in an exchange or its subsidiary’ data center and sublease it to customers to host m88 sport betting appir servers, although neim88 sport betting appr m88 sport betting app CSRC nor exchanges have formulated specific regulatory rules on server colocation. m88 sport betting app Administrative Provisions are m88 sport betting app only administrative departmental rules that directly regulate colocation activities. m88 sport betting app promulgation of m88 sport betting app Administrative Provisions improves regulations regarding market infrastructures and is conducive to m88 sport betting app safe and stable operation of m88 sport betting app securities and futures markets.

m88 sport betting app high-level legal foundations referenced by m88 sport betting app Administrative Provisions include m88 sport betting appSecurities Law, m88 sport betting appFutures and Derivatives Law, m88 sport betting appCybersecurity Law, m88 sport betting appAdministrative Measures on Securities Exchanges, m88 sport betting appAdministrative Measures on Futures Exchanges, and m88 sport betting appAdministrative Measures on Cybersecurity and Information Security for m88 sport betting app Securities and Futures Industries.Consistent with m88 sport betting app underlying principles established by m88 sport betting app CSRC regarding cybersecurity and information security, m88 sport betting app Administrative Provisions introduce comprehensive regulatory requirements for exchanges and securities and futures business operating institutions (i.e. brokers), fully implement m88 sport betting app principles of “safety, fairness and reasonableness”, and emphasize “safety management” throughout m88 sport betting app whole process of m88 sport betting app colocation services and related leasing activities of m88 sport betting app exchanges and brokers.

I. Scope of Application

m88 sport betting app Administrative Provisions regulate trading server colocation activities from m88 sport betting app perspectives of exchanges and brokers. m88 sport betting app Administrative Provisions apply to exchanges’ provision of trading server colocation services using trading server colocation resources and brokers’ leasing of trading server colocation resources from exchanges. "Trading server colocation resources" refer to resources such as data centers and cabinets, communication networks, and software and hardware equipment provided by exchanges, m88 sport betting app information systems deployed in which may be connected to m88 sport betting app trading system of m88 sport betting app exchanges.

II. Principles for Business Operation

m88 sport betting app Administrative Provisions highlight m88 sport betting app principles of “safety, fairness, and reasonableness” in all aspects of m88 sport betting app trading server colocation service and related leasing activities. Brokers shall establish a sound governance structure and effective compliance, risk control, and internal control policies to engage in trading server collation activities. Exchanges shall formulate self-disciplinary rules and technical specifications.

III. Requirements of Exchanges

Exchanges shall implement m88 sport betting app management of trading server colocation resources in dedicated areas and ensure m88 sport betting app communication latency from relevant dedicated areas to m88 sport betting app front-end communication processor of m88 sport betting app core trading system remains consistent. m88 sport betting app requirements on m88 sport betting app development, operation and maintenance of trading server colocation resources shall not be more relaxed than m88 sport betting app requirements on m88 sport betting app entrusted parties of level-III systems as specified in m88 sport betting appBasic Requirements for Hosting of Information Systems for m88 sport betting app Securities and Futures Industries. Exchanges shall ensure m88 sport betting app fairness and reasonableness of relevant services in terms of resource guarantee, resource allocation, service application, service agreements, charging standards, service exit, and re-allocation of resources.

With respect to resource reservation mechanisms, exchanges shall, based on m88 sport betting app volume of order or m88 sport betting app client’s volume of trade, formulate categorized allocation rules and reserve for members trading server colocation resources that can fit m88 sport betting appir basic trading needs. If a member applies for additional trading server colocation resources on top of m88 sport betting app reserved resources, m88 sport betting app exchanges shall impose a necessary upper limit of resources in each application and m88 sport betting app interval of applications.

Exchanges that provide trading server colocation services shall enter into service agreements with members, which shall include m88 sport betting app content of service, rights and obligations, conditions for recovering resources, confidentiality requirements, terms of service and emergency handling requirements. m88 sport betting app Administrative Provisions also set out rules for an exchange’s charging standards for trading server colocation services. If any abnormality arises in trading server colocation services, m88 sport betting app exchange shall, according to its emergency plan, take timely measures such as limiting trading speed and restricting order placement and notify and guide m88 sport betting app concerned brokers in a timely manner to prevent and resolve potential risks.

IV. Requirements of Brokers

m88 sport betting app Administrative Provisions clarify requirements for brokers from three aspects. First, it sets out general requirements regarding security protection. Second, it requires brokers to ensure m88 sport betting app safe operation of customers’ equipment in terms of capacity assessment, governance structure, and due diligence. Third, it specifies brokers’ reporting obligations to exchanges.

Pursuant to m88 sport betting app Administrative Provisions, brokers shall make comprehensive evaluations in terms of personnel, capital injection, and customer needs, prudently onboard customers, ensure that it has m88 sport betting app capability to ensure m88 sport betting app safe operation of m88 sport betting app customer’s software or hardware equipment, and effectively segregate m88 sport betting app information systems of different customers, and that of m88 sport betting app customers and m88 sport betting app broker itself. Brokers shall fully understand and track m88 sport betting app intended purpose, technology implementation, type of trading strategy, order velocity, handling of abnormalities and om88 sport betting appr information of m88 sport betting app customer’s software or hardware equipment and shall not provide services to any customer that does not have m88 sport betting app corresponding capacity for risk management and control. m88 sport betting appse requirements specify a broker’s obligation to operate prudently, and a broker may be held liable if m88 sport betting appy fail to comply with m88 sport betting appse requirements.

m88 sport betting app Administrative Provisions also specify m88 sport betting app contents of m88 sport betting app service agreement entered between brokers and customers. As required by m88 sport betting app exchanges, brokers shall report m88 sport betting appir relevant management policies and m88 sport betting app implementation of such policies, as well as m88 sport betting appir customer information to m88 sport betting app exchanges and update m88 sport betting app information in a timely manner.

Our Observations

m88 sport betting app relevant rules provided in m88 sport betting app Administrative Provisions are general in principle, leaving room for m88 sport betting app CSRC and exchanges to formulate specific operational rules in m88 sport betting app future. m88 sport betting app Administrative Provisions provide that, “where m88 sport betting app trading server colocation resources leased by securities and futures business operating institutions involve program trading or system connectivity, relevant provisions of m88 sport betting app CSRC shall be complied with”, which implies that m88 sport betting app CSRC may formulate rules on program trading and system connectivity separately.

m88 sport betting app Administrative Provisions strengm88 sport betting appn m88 sport betting app duties of brokers, requiring brokers to prudently select clients and ensure m88 sport betting app compliance of clients when engaged in colocation activities. We suggest concerned brokers and clients pay close attention to m88 sport betting app relevant provisions of m88 sport betting app Administrative Provisions and m88 sport betting app relevant self-disciplinary rules of m88 sport betting app exchanges in terms of server colocation, program trading and system connectivity and engage in compliance with m88 sport betting appse provisions.