Derivatives 2025

Definitive global law guides offering comparative analysis from top-ranked lawyers

CHAMBERS GLOBAL PRACTICE GUIDES

Derivatives 2025 Definitive global law guides offering comparative analysis from top-ranked lawyers

Contributing Editor Carl Kennedy Katten Muchin Rosenman LLP

Global Practice Guides

Derivatives Contributing Editor Carl Kennedy Katten Muchin Rosenman LLP

2025

Chambers Global Practice Guides For more than 20 years, Chambers Global Guides have ranked lawyers and law firms across the world. Chambers now offer clients a new series of Global Practice Guides, which contain practical guidance on doing legal business in key jurisdictions. We use our knowledge of the world’s best lawyers to select leading law firms in each jurisdiction to write the ‘Law & Practice’ sections. In addition, the ‘Trends & Developments’ sections analyse trends and developments in local legal markets. Disclaimer: The information in this guide is provided for general reference only, not as specific legal advice. Views expressed by the authors are not necessarily the views of the law firms in which they practise. For specific legal advice, a lawyer should be consulted. Content Management Director Claire Oxborrow Content Manager Jonathan Mendelowitz Senior Content Reviewers Sally McGonigal, Ethne Withers, Deborah Sinclair and Stephen Dinkeldein Content Reviewers Vivienne Button, Lawrence Garrett, Sean Marshall, Marianne Page, Heather Palomino and Adrian Ciechacki Content Coordination Manager Nancy Laidler Senior Content Coordinators Carla Cagnina and Delicia Tasinda Content Coordinator Hannah Leinmüller Head of Production Jasper John Production Coordinator Genevieve Sibayan

Published by Chambers and Partners 165 Fleet Street London EC4A 2AE Tel +44 20 7606 8844 Fax +44 20 7831 5662 Web www.chambers.com

Contents

INTRODUCTION Contributed by Carl Kennedy, Daniel Davis, Stephen Morris, Matthew Kluchenek, Alexander Kim and Nicholas Gervasi, Katten Muchin Rosenman LLP p.4

CHINA Law and Practice p.11

Contributed by Han Kun Law Offices Trends and Developments p.27 Contributed by DeHeng Law Offices

JAPAN Law and Practice p.35 Contributed by Anderson Mōri & Tomotsune Trends and Developments p.50 Contributed by Anderson Mōri & Tomotsune

NIGERIA Law and Practice p.54 Contributed by G Elias

SPAIN Law and Practice p.66 Contributed by Cases & Lacambra

SWITZERLAND Law and Practice p.80 Contributed by Schellenberg Wittmer Ltd Trends and Developments p.95 Contributed by Baker McKenzie Switzerland

UK Law and Practice p.100 Contributed by Katten Muchin Rosenman UK LLP (Katten) Trends and Developments p.115 Contributed by Katten Muchin Rosenman UK LLP (Katten)

USA Trends and Developments p.120 Contributed by ASKramer Law

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INTRODUCTION

Contributed by: Carl Kennedy, Daniel Davis, Stephen Morris, Matthew Kluchenek, Alexander Kim and Nicholas Gervasi, Katten Muchin Rosenman LLP

Katten Muchin Rosenman LLP has a futures and derivatives team that leverages extensive knowledge of futures and derivatives products to help clients achieve their commercial goals. Serving a diverse cli - entele that includes dealers, end-users, proprietary traders, brokers, advisers, exchanges and clearing organisations, the team of more than 25 attorneys handles various commercial transactions across multiple asset classes. With a solid grasp of regula - tions, market practices and documentation, its attor - neys focus on efficient deal closure and compliance

while adeptly navigating regulatory and litigation challenges. The practice is bolstered by the firm's ability to successfully obtain regulatory relief that re - solves issues before they escalate. Katten’s strong US and UK teams are fully co-ordinated to efficiently and consistently serve the needs of clients who do business on both sides of the Atlantic. Clients often rely on Katten as a trusted adviser to design three- cornered analyses for their activities in the United Kingdom, the European Union and the United States.

Contributing Editor

Co-Authors

Carl Kennedy is a partner and co-chair of the financial markets and regulation group at Katten. Clients value his diverse and well-informed perspective formed through his diverse background as a former

Daniel Davis is a partner and co-chair of the financial markets and regulation group at Katten. From derivatives products to cryptocurrencies, he helps clients navigate evolving regulatory requirements. Drawing on

regulator with the Commodity Futures Trading Commission and a former senior in-house counsel at a large investment bank, particularly in relation to the commodities and derivatives markets. Carl's extensive experience makes him a trusted adviser to large and small financial institutions, asset managers, clearinghouses, intermediaries, hedge funds and proprietary trading firms. Clients depend on his guidance regarding derivatives-related litigation and enforcement actions, investigations and complex regulatory issues relating to transactions.

his experience as General Counsel at the Commodity Futures Trading Commission, Dan deeply understands financial services agencies and is trusted by clients to mitigate risks during investigations and enforcement actions. He also provides guidance on rules issued by financial agencies for entities such as futures commission merchants, swap dealers and derivatives clearing organisations. Regarding fraud-related allegations under the Commodity Exchange Act, Dan assists clients in developing compliance practices to meet regulatory standards.

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INTRODUCTION Contributed by: Carl Kennedy, Daniel Davis, Stephen Morris, Matthew Kluchenek, Alexander Kim and Nicholas Gervasi, Katten Muchin Rosenman LLP

Stephen Morris is a financial markets and funds partner at Katten, and has

Alexander Kim is an associate in the financial markets and funds department at Katten, and offers regulatory and general legal guidance to securities broker-dealers, commodities market participants and other players in the financial services industry. He also advises some of the largest and most prominent digital asset trading platforms and blockchain technology companies. Alex’s clients benefit from his extensive technical knowledge of cutting-edge blockchain-based products, gained from his previous experience with a digital asset start-up.

extensive experience as in-house counsel at a leading multinational financial institution and as a trial attorney with the Commodity Futures Trading Commission. As a former senior in-house coverage attorney for the institutional listed derivatives and clearing business of a top-tier broker-dealer/futures commission merchant, Stephen knows regulations surrounding the clearing of futures, equity options and cleared swaps. He counsels on routine documentation to regulatory investigations and enforcement issues, and handles regulatory issues relating to digital assets, digital asset securities and cryptocurrencies. Stephen frequently serves as a FIA Legal & Compliance Conference panel chair. Matthew Kluchenek is a financial markets and funds partner at Katten, whose deep understanding of trading and financial markets enables him to counsel and advocate effectively for clients facing complex allegations of fraud or noncompliance. He regularly advises clients in connection with enforcement inquiries by the Commodity Futures Trading Commission, the Securities and Exchange Commission, the Department of Justice and self-regulatory organisations, such as CME Group and the National Futures Association. Matthew represents clients throughout the financial market ecosystem, including global financial institutions, exchanges, clearinghouses, brokers, dealers, advisers, trading firms and commercial end-users, on a broad array of derivatives issues.

Nicholas Gervasi is an associate in the financial markets and funds department at Katten, and supports financial services clients such as investment advisers, broker-dealers and hedge funds in their regulatory

and transactional matters. He brings a business- oriented approach to complex regulatory challenges. With a background in architecture, Nick is adept at balancing competing interests between the law and client goals. Prior to joining Katten, he gained valuable experience at a nonprofit, where he learned the importance of creative problem-solving within tight budget constraints.

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INTRODUCTION Contributed by: Carl Kennedy, Daniel Davis, Stephen Morris, Matthew Kluchenek, Alexander Kim and Nicholas Gervasi, Katten Muchin Rosenman LLP

Katten Muchin Rosenman LLP 50 Rockefeller Plaza New York New York 10020-1605 USA

Tel: +1 212 940 8800 Fax: +1 212 940 8776 Web: katten.com

Introduction to Derivatives Derivatives have become an integral part of the global financial landscape, with transaction volumes growing dramatically over the years. These powerful, capital- efficient financial instruments, whose value is derived from the value of underlying assets such as stocks, bonds, commodities, currencies, interest rates and market indexes, play a crucial role in risk management and speculative opportunities worldwide. The derivatives industry has undergone significant changes, shaped by global events like the 2008 financial crisis, which prompted a wave of regula - tory reforms aimed at enhancing market stability and transparency. Today, derivatives are traded on regu - lated exchanges and via the over-the-counter (OTC) markets in major financial centres around the world, including New York, London, Tokyo, Singapore and Hong Kong. There are several main types of derivatives, each with its own unique characteristics and purposes. • Futures: contracts obligating the buyer to pur - chase, or the seller to sell, an asset at a predeter - mined future date and price. These are traded on regulated futures exchanges. • Commodity options: contracts giving the buyer the right, but not the obligation, to buy or sell an asset at a set price within a specific period. Options on futures are traded on regulated futures exchanges, while OTC options are bilaterally executed between two parties off-exchange. • Forwards: customised contracts between two par - ties to buy, sell and deliver an asset at a specified

future date for a price agreed upon today (which is often modified during the course of the contract). • Swaps: agreements to exchange cash flows or other financial instruments between parties over a set period. • Contracts for Difference (CFDs): these are deriva - tives that allow traders to speculate on price move - ments of assets, settling the difference in value between opening and closing prices in cash, with - out physical delivery of the underlying commodity. CFDs are deemed to be swaps in the United States but are considered a distinct type of derivatives product in some other jurisdictions. While derivatives are powerful tools for risk man - agement, allowing businesses to protect against price volatility, currency fluctuations and interest rate changes, they also carry significant risks, including market, credit and liquidity risks. Most jurisdictions place considerable restrictions on who can trade derivatives, how these instruments are traded, and whether certain post-execution activities (eg, man - datory clearing, imposition of margin, risk mitigation measures) must occur. The regulatory environment for derivatives varies by country but has seen increased oversight and reform over the last decade. The primary regulatory bodies in some of the most active trading jurisdictions (by trading volumes) include: • the U.S. Commodity Futures Trading Commission (CFTC); • the European Securities and Markets Authority (ESMA);

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INTRODUCTION Contributed by: Carl Kennedy, Daniel Davis, Stephen Morris, Matthew Kluchenek, Alexander Kim and Nicholas Gervasi, Katten Muchin Rosenman LLP

• the Financial Conduct Authority (FCA) of the United Kingdom; • the Financial Services Agency of Japan (FSA); and • the Monetary Authority of Singapore (MAS). This guide aims to provide a clear understanding of derivatives, their types, global market impact and regulatory landscape, helping business profession - als navigate the complexities of this rapidly evolving financial environment. This guide will also cover recent developments in the derivatives market, including but not limited to international co-operation, novel prod - ucts, technological innovations and improved risk management of central counterparties (CCPs). Markets and size Derivatives markets play a vital role in the global econ - omy, such as enabling commercial businesses to raise financing at competitive rates and effectively manage their exposures to various. This, in turn, allows these businesses to invest and grow, spurring economic growth. The size of the derivatives market is stagger - ing, with the notional value of outstanding derivatives growing by 5% in 2024 to reach USD699 trillion. Inter - est rate derivates (IRDs) are the largest component of the global aggregate, and rose by 3% year-on-year to USD548 trillion (Report, Global OTC Derivatives Mar - ket, Bank for International Settlements, 2025, avail - able at data.bis.org). As noted above, derivatives are traded on both regulated exchanges and OTC markets. Exchange- traded derivatives are standardised contracts traded on regulated exchanges, offering price transparency and liquidity. Major derivatives exchanges include the Chicago Mercantile Exchange, Eurex and the Tokyo Financial Exchange. These exchanges operate under strict regulatory frameworks to ensure market integrity and protect investors, with rules covering contract specifications, trading procedures, margin requirements and reporting obligations. In some juris - dictions, certain derivatives – such as futures con - tracts, options on futures contracts and certain types of standardised swaps – are required to trade on a regulated exchange. On the other hand, many bespoke derivatives are traded OTC, which means that these contracts are

traded directly between parties or through brokers or electronic trading platforms. While the OTC markets offer flexibility, they come with higher counterparty risk compared to exchange-traded derivatives. Post- 2008 financial crisis reforms, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in the United States and the European Market Infrastructure Regulation (EMIR) in Europe, have increased oversight of OTC markets, introduc - ing requirements for trade reporting, central clearing, registration of certain large market participants and risk mitigation. Clearing of derivatives ensures that trades are set - tled efficiently and securely through a central clear - inghouse. A clearinghouse manages the risk between buyers and sellers by guaranteeing the terms of the contract, ensuring each party fulfils its respective obli - gations. Clearinghouses centralise and standardise transactions, reducing counterparty risk and enhanc - ing market stability, thereby playing a crucial role in safeguarding the global financial system against systemic shocks. This process fosters market sta - bility and trust, enabling businesses to manage their financial exposures effectively. With more and more derivatives becoming subject to mandatory clearing, systemic risk concerns have shifted from too-big-to- fail market participants to regulated clearinghouses. Key participants in derivatives markets include: • institutional investors; • commodity trading advisers; • fund managers and hedge funds (commodity pools); • commercial hedgers; • retail traders; • banks; • corporations; • insurance companies; • pension plans; and • asset managers. Each group has different motivations, ranging from hedging risk to seeking profit through speculation. While derivatives offer many benefits, they also involve various risks, including market risk, liquidity risk, operational risk and counterparty risk. Effective

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INTRODUCTION Contributed by: Carl Kennedy, Daniel Davis, Stephen Morris, Matthew Kluchenek, Alexander Kim and Nicholas Gervasi, Katten Muchin Rosenman LLP

risk management strategies and regulatory compli - ance are essential for mitigating these risks. Regulators monitor and assess the activities of key players in the derivatives market by requiring the regis - tration of clearinghouses, trade repositories and large market participants. By mandating registration, regu - lators gain valuable insights into the operations, risk management practices and financial health of these entities. This transparency allows for more effective supervision, and helps to identify potential systemic risks before they escalate. Furthermore, registration often comes with specific compliance obligations, ensuring that these institutions adhere to established standards of conduct, reporting and risk manage - ment. As the derivatives market continues to evolve, the registration process also provides a framework for regulators to adapt their oversight to new and emerg - ing market developments. History of derivatives Derivatives have a rich history dating back to ancient civilisations, where farmers and merchants used for - ward contracts to lock in prices for agricultural prod - ucts. Aristotle recounts the renowned case of Thales’s market corner in the 6th century BCE. Thales, so the story goes, was weary of the jeers of his contemporar - ies that his interest in philosophy and astronomy was useless, and the reason for his impoverished state. Having observed the correlations between climate and olive harvests in his native Miletus (on the west coast of present-day Türkiye), he predicted over the course of an unusually mild winter that there was going to be a large crop of olives, so he raised a small sum of money and bought or rented all the olive presses in the region. When the bumper harvest came and the demand for presses exploded, Thales’s corner of the market for olive presses paid off – proving, as Aristotle concludes, “that it is easy for philosophers to be rich if they choose, but this is not what they care about”. The 19th century saw the creation of futures exchanges for agricultural commodities, with the Chicago Board of Trade (CBOT) in the United States, established in 1848, playing a pivotal role in the development of standardised futures contracts. With the introduc - tion of financial futures in the 1970s, the derivatives market expanded beyond derivatives on agricultural

commodities to encompass derivatives on financial products such as interest rates, currencies and stock indices. Swaps emerged as a key derivative product in the 1980s, starting with currency swaps and followed by interest rate swaps. Companies and financial insti - tutions entered into swaps to manage exposure to fluctuations in interest rates and exchange rates. The 1990s witnessed a rapid expansion in the use and variety of derivatives, including the introduction of credit default swaps (CDS) and the significant growth of OTC markets. However, global financial crises have highlighted the risks associated with derivatives. The 1997 Asian Financial Crisis and the 2008 Global Financial Crisis underscored the systemic risks posed by derivatives, particularly in the mortgage-backed securities mar - ket and CDS, leading to catastrophic losses for major financial institutions and prompting calls for regulatory reform. In response to the 2008 Global Financial Crisis, leaders of the G-20 met in Pittsburgh in 2009 and agreed on comprehensive reforms to increase transparency and reduce risks in the OTC derivatives markets. These agreements reached among world leaders resulted in the establishment of key principles for the regula - tion of OTC derivatives, including required clearing of standardised OTC derivatives through CCPs and reporting of OTC derivatives trades to trade reposi - tories. Policymakers in various jurisdictions enacted significant regulatory reforms, including Dodd-Frank and EMIR, and regulatory bodies promulgated strin - gent rules to oversee derivatives activities, aiming to mitigate systemic risks, enhance market transparency and protect market participants. Organisation of topics The world of derivatives is complex, dynamic and critically important to global financial markets. This comprehensive guide aims to provide a thorough understanding of derivatives, from their fundamental concepts to the intricate regulatory landscape and current enforcement trends. By exploring the various types of derivatives, their regulation, documentation practices and recent enforcement activities, readers

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INTRODUCTION Contributed by: Carl Kennedy, Daniel Davis, Stephen Morris, Matthew Kluchenek, Alexander Kim and Nicholas Gervasi, Katten Muchin Rosenman LLP

will gain valuable insights into this sophisticated finan - cial domain. This guide is organised into the following chapters. • General: this section provides a foundational understanding of the derivatives markets, setting the stage for a more detailed explanation of spe - cific derivative types, their regulation, documenta - tion and enforcement trends. • Types of derivatives: building on the general over - view and historical context, this section delves into the specific types of derivatives, examining their unique characteristics, regulatory aspects and emerging trends. • Regulation of derivatives: this section focuses on the roles of various regulatory bodies and spe - cific regulatory requirements. It identifies national regulators and their jurisdictions, and outlines rules on clearing, mandatory trading, position limits and reporting. It also covers the regulation of derivatives at subnational and supranational levels. Lastly, it considers oversight by self-regulatory organisations and exchanges. • Documentation issues: after establishing the regu - latory framework, this section addresses the docu - mentation practices critical for trading and clearing derivatives, highlighting industry standards and specific requirements. It covers industry standards for derivatives documentation and addresses spe - cific requirements for trading agreements, margin documentation and legal opinions. • Enforcement trends: this section examines recent enforcement activities and trends, providing insights into regulatory priorities and compliance expectations. Recent developments In recent years, the global derivatives market has undergone significant changes, driven by geopoliti - cal trends and deregulation, demand for 24/7 trading, tokenisation and stablecoins, perpetual futures and event contracts. These advancements have aimed to create a more transparent, inclusive and accessible financial landscape, expanding the reach of deriva - tives markets.

Geopolitical trends/deregulation Over the past year, fluctuating tariffs, trade negotia - tions amongst major nations, and ongoing and recent military conflicts around the world have impacted pric - ing and trading in derivatives markets. In addition, the collective worldwide, growing deregulatory agenda has shifted the regulatory priorities for derivatives, focusing instead on practical safeguards for inves - tors and markets, and on defined requirements as opposed to regulation by enforcement or large com - prehensive rule proposals. European regulators have sought feedback on opportunities to streamline finan - cial regulatory reporting requirements. The expansion of an open-source data standard for financial prod - ucts and trade reporting to Asia and Australia is opti - mising regulatory compliance and improving reporting efficiency. This deregulatory trend induced delays in the imple - mentation of Basel III and the U.S. Treasury clearing mandate, which will both fundamentally alter deriv - atives markets. This shift has led to new product launches, such as perpetual-style futures and event contracts, and growing sentiment of a business- friendly environment for market participants. 24/7 trading Designated contract markets (DCMs) and swap exe - cution facilities (SEFs) are evaluating the extension of trading and clearing operations to a 24/7 schedule, encompassing weekends and holidays. This potential departure from the traditional business hours model would align derivatives markets with the continuous access already offered by certain digital asset plat - forms. 24/7 trading functionality would allow deriva - tives exchanges to access global demand, which is currently channelled through alternative trading plat - forms. However, implementing 24/7 trading presents chal - lenges for exchanges and clearinghouses, as they must maintain liquidity across time zones, manage risk and margin in real time, and build operational sys - tems that can withstand continuous use. In addition, thinly traded periods may increase susceptibility to price manipulation, and continuous use could strain infrastructure to address defaults and disruptions.

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INTRODUCTION Contributed by: Carl Kennedy, Daniel Davis, Stephen Morris, Matthew Kluchenek, Alexander Kim and Nicholas Gervasi, Katten Muchin Rosenman LLP

Tokenisation and stablecoins Blockchain and distributed ledger technologies have the potential to transform the infrastructure support - ing derivatives markets, particularly with collateral management. Tokenisation is the process of creat - ing digital representations of assets such as cash and securities on a blockchain, and offers a way to miti - gate operational difficulties and settlement delays in post-trade processes. In cleared derivatives markets, where participants must post both initial and variation margin to CCPs, the ability to move tokenised assets in near real time has the potential to reduce settle - ment times from days to minutes. Tokenised assets, such as stablecoins, can be transferred and recorded on-chain, which would increase liquidity and ease the burden of intraday margin calls for participants. Moreover, reduced settlement times allow for near instant collateral movement – a crucial step towards 24/7 derivatives trading and risk management. Perpetual futures Amidst ongoing efforts to classify perpetual deriva - tives as either swaps or futures contracts, particularly in the US, regulators are exploring their potential uses, benefits and risks. In contrast to traditional futures, perpetual futures do not have an expiration date and use a funding rate mechanism to keep them aligned with the spot price of the underlying asset. Moreover, traditional futures are price benchmarked near the expiration of the contract, whereas perpetual futures are price monitored and settled on an ongoing basis. New crypto-based perpetual futures have flourished across the globe. Resolving the classification issue in some jurisdic - tions will lead to clarity on the tax status, capital requirements, reporting, account structure and risk management of these products. As perpetual futures often allow for higher leverage, traders are exposed

to higher gains and losses as price fluctuations will amplify these positions. Other issues with perpetual futures include divergence from the actual value of the underlying asset, the need to maintain funding rate payments, and the risk of market manipulation, such as traders holding large positions open in an attempt to influence prices. Event contracts Event contracts are financial instruments that allow market participants to take positions on the out - comes of specific events, often allowing traders to buy “yes” or “no” positions, functioning as a mar - ketplace between traders. Popular examples include political event contracts such as which candidate will win in national presidential elections or sporting event contracts such as which country will win the World Cup. Their popularity has increased as investors look for new ways to hedge or speculate on news-driven outcomes and as digital platforms simplify access to markets. As a progression from interest rates, energy and weather contracts, political and sporting event contracts pose new questions surrounding what defines betting on elections or sports gaming or gam - bling. The continued proliferation of types and volume of event contracts will shape prediction and informa - tion markets and retail investor access to derivatives. Conclusion Derivatives have evolved significantly from their early origins and become integral to modern financial mar - kets. Despite their benefits in risk management, the complexity and potential risks of derivatives require ongoing regulatory oversight and prudent use by mar - ket participants. The future of derivatives will likely continue to be shaped by technological innovations, regulatory developments and the changing needs of the global economy.

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CHINA

Law and Practice Contributed by: TieCheng Yang, Yin Ge, Lin (Avery) Huang and Weijun (Elliot) Yi Han Kun Law Offices

Contents 1. General p.14 1.1 Overview of Derivatives Markets p.14 1.2 Historical Trends and Looking Forwards p.15

2. Types of Derivatives p.16 2.1 Futures and Options p.16 2.2 Swaps and Security-Based Swaps p.17 2.3 Forwards p.19 2.4 Listed v Over-the-Counter p.20 2.5 Asset Classes p.20 2.6 Exemptions, Non-Derivative Products and Spot Transactions p.20 3. Regulation of Derivatives p.21 3.1 National p.21 3.2 Local p.23 3.3 Self-Regulatory Organisations, Independent Authorities, and Exchanges p.23

4. Documentation Issues p.24 4.1 Trading Documentation p.24 4.2 Clearing Documentation p.25 4.3 Opinions and Other Documentation Issues p.26 5. Enforcement Trends p.26 5.1 Regulator Priorities and Enforcement Trends p.26

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CHINA Law and Practice Contributed by: TieCheng Yang, Yin Ge, Lin (Avery) Huang and Weijun (Elliot) Yi, Han Kun Law Offices

Han Kun Law Offices is a full-service law firm in China and has been widely recognised as a leader in complex cross-border and domestic transactions. Its main practice areas include, among others, pri - vate equity, banking and finance, asset management, M&A, capital markets, investment funds, compliance, intellectual property and dispute resolution. It has nearly 800 professionals located in its Beijing, Shang - hai, Shenzhen, Hong Kong, Haikou, Wuhan, Singa - pore, New York City and Silicon Valley offices. It has integrated the best Chinese and Western practices

to develop a client-oriented, first-class firm. Its Asset Management & Financial Services team has extensive practice in futures and derivatives regimes. It advises major Chinese exchanges, including the Shanghai Futures Exchange, Dalian Commodity Exchange and International Energy Exchange, on various initiatives. It assists both PRC and international leading institu - tions with matters involving futures and OTC deriva - tives transactions, repo transactions, margin trading and securities lending, structured notes, and other complex and cutting-edge financial products.

Authors

TieCheng Yang is a partner in Han Kun’s Asset Management & Financial Services group. Before joining Han Kun, Mr Yang was a partner at Clifford Chance, where he headed the firm’s financial regulatory practice in China. Mr Yang has over 30 years’ experience in advising on various financial service issues, including renminbi internationalisation, banking, bonds, securities and insurance, derivatives, structured products, the Mutual Connect Regime, investment funds (QFI and QDII), cybersecurity and fintech. Mr Yang is a member of NAFMII’s Legal Committee and NAFMII’s Repo Master Agreement Drafting Committee. He is also a specially invited professor for the LL.M. programme at Tsinghua University School of Law and Schwarzman Scholars.

Yin Ge is a Shanghai-based partner in Han Kun’s Investment Management & Finance Group and a globally renowned legal expert in this area. She sits on the management committee of Han Kun’s Shanghai

office and heads the firm’s financial services practice. Yin is a board member of the Shanghai Asset Management Association. Before joining Han Kun, Yin led the financial services practice at Clifford Chance Shanghai. Yin graduated from Cornell University and is admitted to practice in the PRC and New York State. Yin’s clients include leading global asset managers, trading firms, financial institutions, financial regulators, exchanges and trading platforms. Yin has also been deeply involved in advising on legislation for China’s financial services sector.

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CHINA Law and Practice Contributed by: TieCheng Yang, Yin Ge, Lin (Avery) Huang and Weijun (Elliot) Yi, Han Kun Law Offices

Lin (Avery) Huang joined Han Kun’s Asset Management & Financial Services group in 2022, where she specialises in advising international and domestics banks, securities companies, fund managers and other

Weijun (Elliot) Yi joined Han Kun’s Asset Management & Financial Services group in 2024, where he focuses on banking and finance, financial services and regulatory, financial derivatives and asset management. Mr Yi has provided legal advice on financial regulation and data compliance to domestic and foreign banks, securities firms, fund companies and international asset management institutions. He has also reviewed ISDA, NAFMII and GMRA agreements and has provided legal services for the issuance of QDII/QDLP products. Mr Yi graduated from Peking University Law School with an LL.B. degree in 2022 and graduated from Peking University Law School with a Juris Master degree in 2024.

financial institutions on financial regulations, banking and derivatives, asset management. Ms Huang has experience in advising on QFI and QDII investment, cross-border derivatives and financial products, margin financing and securities borrowing, repurchase transactions and structured notes. Ms Huang received an LL.B. degree from East China University of Political Science and Law and an LL.M. degree from New York University, and is admitted to practice in the PRC and New York State.

Han Kun Law Offices 9/F, Office Tower C1, Oriental Plaza, 1 East Chang An Ave., Dongcheng District, Beijing 100738 PRC Tel: +86 10 8525 5500 Fax: +86 10 8525 5511/5522 Email: beijing@hankunlaw.com Web: hankunlaw.com/en/

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CHINA Law and Practice Contributed by: TieCheng Yang, Yin Ge, Lin (Avery) Huang and Weijun (Elliot) Yi, Han Kun Law Offices

1. General 1.1 Overview of Derivatives Markets General Regulatory Regime

rules and regulations issued by that infrastructure, including those governing trading, settlement and clearing. The PRC Futures and Derivatives Law (FDL) provides a foundational and comprehensive legal framework for the regulation of the futures and OTC derivatives markets in China. This is discussed in detail in 1.2 Historical Trends and Looking Forwards . In Chi - na, establishing a futures exchange requires CSRC approval, and any standardised futures or options contracts must be registered with CSRC before listing and trading. As a result, on top of the FDL, futures and standardised options trading is primarily regulated by CSRC together with the relevant futures exchanges or two securities exchanges, while OTC derivatives are subject to regulation by multiple governmental authorities and self-regulatory organisations, depend - ing on the specific product types, underlying assets and other elements. Available Investment Channels for International Investors Notably, due to restrictions on foreign equity participa - tion in China’s financial markets and foreign exchange control policies, international investors are subject to restrictions on participation in derivatives trading in China or with Chinese counterparties. Nevertheless, China is committed to promoting the high-level open - ing up of the financial market and, currently, interna - tional investors may access China’s derivatives mar - ket through the following channels. Foreign direct investment International investors can establish foreign-invested enterprises in China and open institutional futures accounts to invest in onshore futures and options products by their renminbi (RMB) revenue. Since there is generally no licensing requirement for ordinary mar - ket participants to engage in OTC derivatives trading in China, international investors are also able to do so through their PRC foreign-invested enterprises, sub - ject to certain investor suitability requirements. Qualified Foreign Investor (QFI) regime Under the QFI regime, eligible foreign institutional investors recognised by CSRC are allowed to trade specific derivatives products designated by the

China’s derivatives market operates under a multi- sector regulatory regime, where both governmental authorities and self-regulatory organisations play roles in maintaining market order. Oversight is divided by factors such as participant type, product category, underlying asset and policy objectives. Specifically, the main governmental authorities are the China Securities Regulatory Commission (CSRC), the People’s Bank of China (PBoC), the National Financial Regulatory Administration (NFRA), the State Adminis - tration of Foreign Exchange (SAFE), the State-owned Assets Supervision and Administration Commission (SASAC) and the Ministry of Finance (MOF). Self-reg - ulatory organisations include the National Association of Financial Market Institutional Investors (NAFMII), the Securities Association of China (SAC), the Asset Management Association of China (AMAC) and the China Futures Association (CFA). The specific allo - cation of duties and functions among these govern - mental authorities and self-regulatory organisations is discussed in detail in 3.1.1 National Regulators and 3.3 Self-Regulatory Organisations, Independ- ent Authorities, and Exchanges . For purposes of this practice guide only, “China” and “the PRC” refer to Mainland China, which is exclusive of the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan. As will be further discussed in 3.3 Self-Regulato- ry Organisations, Independent Authorities, and Exchanges , in China, the main onshore derivatives market infrastructure consists of exchanges (includ - ing six futures exchanges for most futures and two securities exchanges for exchange-traded fund (ETF) options, as discussed in detail in 2.1 Futures and Options , and the Shanghai Gold Exchange (SGE) for certain over-the counter (OTC) products), OTC-cen - tralised trading venues (ie, China Foreign Exchange Trade System (CFETS) and China Securities Internet System Co., Ltd. (CSIS)) and an OTC central counter - party (ie, Shanghai Clearing House (SHCH)). Where derivatives transactions involve any market infrastruc - ture, such transactions are also subject to the relevant

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CHINA Law and Practice Contributed by: TieCheng Yang, Yin Ge, Lin (Avery) Huang and Weijun (Elliot) Yi, Han Kun Law Offices

exchanges with the permission of CSRC. This will be discussed further in 2.1 Futures and Options . CIBM Direct After pre-filing with PBoC, eligible foreign institution - al investors and the products they issued may have direct access to the China Interbank Bond Market (“CIBM Direct”), while bond forwards, forward rate agreements and interest rate swaps are available to these international investors only for hedging their bond holding from CIBM Direct. International inves - tors may open an account directly with onshore set - tlement agents or adopt a custodian model. In addition, foreign institutional investors are permit - ted to trade onshore FX derivatives to manage FX risk exposure arising from their CIBM Direct investments. FX risk exposure consists of the principal, interest and market value fluctuations of bond investments, etc. Foreign institutional investors with actual CIBM Direct bond holdings can trade onshore FX forwards for hedging purposes. Internationalised futures products For specific futures contracts designated by CSRC (“Internationalised Futures Products”), internation - al investors may trade through domestic or foreign brokerages as intermediaries, or trade directly on the exchanges, subject to certain criteria. To date, China has introduced 15 futures contracts and nine options contracts for trading by foreign investors, with general eligibility criteria set by the domestic futures exchanges. Northbound Swap Connect The eligibility for the Northbound Swap Connect is the same as that for CIBM Direct. Under the Swap Connect regime, international investors can leverage their familiar offshore trading platforms to trade inter - est rate swaps in the China interbank market without the need to open accounts or adopt complex custody arrangements onshore. This will be discussed further in 2.2 Swaps and Security-Based Swaps . 1.2 Historical Trends and Looking Forwards Introduction of the FDL The FDL came into effect on 1 August 2022 and is an important milestone in the construction of the rule of

law in China’s capital markets. As the “basic law” for China’s futures and derivatives markets, the FDL pro - vides a legal basis for the high-quality development of the futures and derivatives markets. The FDL applies to futures transactions, derivatives transactions and related activities conducted within China, and those conducted outside China that dis - rupt the domestic market order or damage the lawful interests of domestic traders. In terms of scope of application, the FDL focuses on regulating the futures market, while also considering the OTC derivatives market, and leaves room for future reform and inno- vation. Notably, the FDL for the first time recognises in law the enforceability and effectiveness of a close-out netting regime and the single agreement concept, paving the way for China to become a clean close-out netting jurisdiction. The FDL effectively eliminates the con - cerns over bankruptcy administrator powers in deriva - tives transactions with respect to cherry-picking and clawback rights. Meanwhile, it is worth noting that the FDL has extra - territorial effect on offshore entities under certain circumstances, in addition to purely offshore futures and derivatives transactions and related activities that disrupt the onshore markets. For example, offshore futures trading venues will generally need to register with CSRC and accept its supervision if they provide onshore entities or individuals with direct access to their trading system for trading services. Also, off - shore futures, options or derivatives contracts listed in offshore futures trading venues that reference the prices of contracts listed onshore must comply with the relevant CSRC rules. In addition, marketing, pro - motion and solicitation activities in China conducted by offshore entities require CSRC approval and are subject to the relevant provisions of the FDL; onshore entities will also need to obtain CSRC’s approval if they intend to engage in such activities for the benefit of offshore entities. This echoes the increasingly tight - ened regulatory position over marketing activities by offshore entities in China.

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The Forthcoming Measures for Supervision and Administration of Derivatives Trading (“Draft Derivatives Trading Measures”) In 2023, CSRC conducted two rounds of consultation on the Draft Derivatives Trading Measures. The pro - posed rules will govern OTC derivatives transactions, with the exception of those conducted in the China interbank derivatives market or on platforms organ - ised by banking and insurance financial institutions. The Draft Derivatives Trading Measures propose the preliminary establishment of a trade repository framework in China and prohibit market participants from using OTC derivatives to circumvent regulatory requirements. Notably, the Draft Derivatives Trading Measures are intended to apply extraterritorially, extending to deriv - atives transactions conducted overseas that relate to underlying assets within China and/or involve hedging transactions taking place within China. This proposal has generated considerable debate among market participants, and CSRC has yet to clarify both the scope of extraterritorial application and the possible methods of enforcement. New Variation Margin and Initial Margin Rules NFRA issued margin rules for non-centrally cleared derivatives transactions of financial institutions in December 2024 (“NFRA Margin Rules”). The NFRA Margin Rules are highly aligned with the framework published by the Basel Committee on Banking Super - vision and the International Organization of Securi - ties Commissions. This is discussed further in 4.1.2 Margins . Stringent Regulatory Requirements on Program Trading in the Futures Markets In June 2025, CSRC issued the Administrative Pro - visions on Program Trading in the Futures Markets (for Trial Implementation) (“Futures Program Trading Provisions”), stipulating the reporting obligations for program traders. Meanwhile, participants in high-fre - quency trading (HFT) of futures via program trading are now subject to additional and stricter require - ments under the Futures Program Trading Provisions, and the futures exchanges may adopt a differentiated transaction fee structure for HFT. In addition, with

respect to technology system access and server co- location, CSRC in principle requires program traders to comply with the rules set by the exchanges. The exchanges are expected to impose more stringent requirements in these areas. Prospect of Using RMB-Denominated Chinese Government Bonds as Margin Permitting the use of RMB-denominated bonds as collateral in derivatives transactions can significant - ly enhance the utility and flexibility of RMB assets held by international investors. The widespread use of onshore RMB-denominated Chinese government bonds in international derivatives trading still faces obstacles, primarily due to foreign exchange controls and an underdeveloped cross-border custody sys - tem. However, significant progress has been made with offshore RMB bonds. In January and March 2025, Hong Kong Exchanges and Clearing Limited (HKEX) announced that it would accept Chinese government bonds and policy bank bonds held by international investors through Bond Connect as margin collateral for Swap Connect and all derivatives transactions cleared by OTC Clearing Hong Kong Limited (“OTC Clear”). This marks a major step forward in the use of RMB bonds as collateral. In China, exchange-traded futures and options pri - marily consist of commodity futures and options (covering energy, agricultural products and metals), financial futures and options, as well as one contain - erised-freight-index-linked future. Commodity futures and options are listed and trad - ed on five commodity futures exchanges, namely the Shanghai Futures Exchange (SHFE), the Shang - hai International Energy Exchange (INE), the Dalian Commodity Exchange (DCE), the Zhengzhou Com - modity Exchange (ZCE) and the Guangzhou Futures Exchange (GFE). 2. Types of Derivatives 2.1 Futures and Options Overview of Futures and Options in China Financial futures are listed and traded on the China Financial Futures Exchange (CFFEX), which is the only

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financial futures exchange in China. Products traded on CFFEX include China government bond futures, stock index futures and options. In addition, two securities exchanges, the Shenzhen Stock Exchange (SZSE) and the Shanghai Stock Exchange (SSE) list ETF options, such as the CSI 50 ETF option and CSI 300 ETF option. At present, more than 145 futures and options prod - ucts have been listed in China’s futures markets, among them, more than 125 referencing commodi - ties, over 20 referencing financial instruments and one containerised-freight-index-linked future. Commodi - ty-related futures and options account for the major - ity of exchange-traded futures and options in China, representing approximately 70% of the total notional trading volume, according to data from CFA. Innovative Futures and Options Products On 18 August 2023, the SCFIS (Europe) futures con - tract was officially listed for trading on the INE. The underlying index is the Shanghai (export) Container - ized Freight Index based on Settled Rates (SCFIS) (Europe service), which is compiled and published by the Shanghai Shipping Exchange. This is the world’s first shipping futures contract developed based on a Chinese containerised freight index. Given that China’s port cargo and container throughput remains the world’s highest, the launch of the SCFIS (Europe) futures meets the hedging and risk management needs of shipping companies and foreign trade enter - prises. In addition, GFE is positioned to list products related to green development and new energy industries. It has already listed three futures and options products linked to major new energy-related products – silicon metal, lithium carbonate and polysilicon. Meanwhile, CSRC is guiding GFE to develop other green prod - ucts including futures referencing carbon emissions, climate-related factors and electricity. Separately, in China, pursuant to the Notice on Fur - ther Preventing and Dealing with Speculation Risks in Virtual Currency Trading issued by PBoC, the Office of the Central Cyberspace Affairs Commission, the Supreme People’s Court, the Supreme People’s Proc - uratorate, the Ministry of Industry and Information

Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Bank - ing and Insurance Regulatory Commission (replaced by NAFR in May 2023), CSRC and SAFE on 15 Sep - tember 2021, business activities related to virtual cur - rencies, including derivatives trading, are considered illegal financial activities and are strictly prohibited. As such, there are currently no listed futures contracts linked to virtual currencies in China. Foreign Institutional Investors As mentioned in 1.1 Overview of Derivatives Mar- kets , foreign institutional investors may participate in the trading of CSRC-approved futures and options contracts by obtaining a QFI licence, or directly trade designated futures contracts and options without a licence. Notably, the scope of futures and options available to QFIs has expanded this year. On 20 June 2025, 16 additional commodity derivatives were added to the QFI investment scope. Starting from 9 October 2025, QFIs will be permitted to participate in ETF options, including four ETF options listed on SZSE and five ETF options listed on SSE, totalling nine products. At time of writing, the number of futures and options available to QFIs has increased to 91, and on 9 October 2025, with the expansion to include additional ETF options, the total number will reach exactly 100. It is noteworthy that under CSRC’s rules, QFIs may trade financial futures or options for hedging purposes only. 2.2 Swaps and Security-Based Swaps Regulatory Regimes for Swaps in China All swap transactions in China are conducted OTC, and there are no exchange-traded swap products. The main types of swaps traded in China are, among others, interest rate swaps, FX swaps, credit default swaps (CDSs), commodity swaps and equity swaps. In terms of regulation, as explained in more detail in 3.1.1 National Regulators , China’s financial system follows a sector-based regulatory mode. Therefore, the regulation of China’s derivatives market is carried out by different authorities, mainly based on the type of market participants, the nature of the trading venue

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