Event: on April 20, 2022, the 34th meeting of the Standing Committee of the 13th National People’s Congress voted and adopted the futures and derivatives law of the people’s Republic of China (effective from August 1, 2022).
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The further improvement of the legislative system of the capital market is a milestone in the construction of the rule of law in the futures market. In 1990, Zhengzhou grain wholesale market was established and the introduction of futures trading mechanism became the beginning of the development of China’s futures industry. After more than 30 years of development, the current futures market has a considerable scale. According to the data of China Futures Association, as of March 2022, the customer equity of futures companies across the country rose to 1.26 trillion yuan, a year-on-year increase of 31.6%; From January to February, the total net profit of national futures companies was 1.422 billion yuan, a year-on-year increase of 9.53%. At present, China’s futures industry is developing rapidly. In terms of legislation, the regulations on the administration of futures trading was launched in 2007, and futures exchanges and industry associations also launched relevant self-discipline rules, forming the futures legal market system. However, due to the low level of these laws, which do not match the development of China’s futures market and the next development goal, the futures and derivatives law of the people’s Republic of China has been released to supplement the legal “weakness” in the field of China’s futures and derivatives. The futures and derivatives law comprehensively and systematically stipulates various basic systems of the futures market and derivatives market, and provides a strong legal guarantee for building a standardized, transparent, open, dynamic and resilient capital market, which is of great and far-reaching significance.
Standardize the derivatives market and effectively prevent financial risks. The law on futures and derivatives stipulates the definition of derivatives trading for the first time, which is different from futures and futures trading in a narrow sense, fills the legal gap of derivatives in China and brings derivatives trading into the scope of legal adjustment. At the same time, the futures and derivatives law draws lessons from the experience of international mature markets, establishes the basic systems of derivatives trading such as single master agreement, termination of net settlement and transaction report library, and authorizes the State Council to formulate specific management measures to make the development of derivatives market “have laws to follow”. In addition, it is one of the legislative purposes of the futures and derivatives law to clearly prevent and resolve financial risks and maintain national economic security. This Law specifies in detail the risk control system of futures trading, defines the legal status of futures settlement institutions, strengthens the regulatory responsibilities of futures trading places, and strives to build a three-dimensional and diversified risk prevention and control system to ensure the smooth operation of the futures market.
Give full play to the function of derivatives market and adhere to the main line of serving the development of real economy. The futures and derivatives law provides legal guarantee for the healthy development of the futures market and derivatives market, which is conducive to the market functions of price discovery, risk management and resource allocation, and continues to play the role of the futures market and derivatives market in serving the real economy. Specifically, this Law clearly stipulates that it is encouraged to use the futures market and derivative market to engage in risk management activities such as hedging; At the same time, the state will take measures to promote the development of Shenzhen Agricultural Products Group Co.Ltd(000061) futures and derivatives markets and guide China’s Shenzhen Agricultural Products Group Co.Ltd(000061) production and operation. In addition, the futures and derivatives law defines the business scope of futures brokerage, futures investment consulting, futures market making trading and other futures businesses of futures companies, and reserves legal space to enhance the operation ability and risk management ability of futures companies and better serve entity enterprises.
Build a new pattern of opening the futures market to the outside world. Opening wider to the outside world is the only way to improve the core competitiveness and international influence of China’s futures market. The formulation of the futures and derivatives law has filled the gap in the legal system of foreign-related futures trading. The trading scale of China’s commodity futures has ranked first in the world for many consecutive years. It is the world’s largest futures market for Shenzhen Agricultural Products Group Co.Ltd(000061) , non-ferrous metals, coke, thermal coal and black building materials. It is also a major purchaser of global bulk commodities. However, at present, China has a weak voice in the international pricing power of bulk commodities, mainly due to the insufficient internationalization of China’s futures market and its weak international competitiveness. There are special chapters in the futures and derivatives law that stipulate the relevant regulations on cross-border transactions and supervision, which provides legal protection for the cross-border interconnection of the futures market, is conducive to maintaining the healthy development of the market and promoting institutional opening, so as to enhance the global attractiveness and competitiveness.
