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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