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