CHINA Law and Practice Contributed by: TieCheng Yang, Yin Ge, Lin (Avery) Huang and Weijun (Elliot) Yi, Han Kun Law Offices
activities related to spot commodity trading. CSRC is responsible for rectifying any spot trading venues that conduct activities resembling illegal commodity futures trading. Local governments, under the guid - ance of the State Council, manage approximately 145 commodity spot trading centres, formulating local rules and exercising supervision. Spot commodities trading does not fall under the derivatives regulatory framework but is tightly supervised to prevent dis - guised illegal futures activity. Foreign exchange in China is strictly regulated, and PBoC and SAFE oversee FX transactions. Individu - als may conduct FX spot transactions primarily for legitimate current-account purposes, such as cur - rency conversion and cross-border transfers. Cap - ital-account FX transactions for individuals remain restricted and are permitted only under specific cir - cumstances, such as cross-border equity incentives. Securities firms are prohibited from offering deriva - tives services to individual clients, and banks rarely offer FX derivatives to individuals, reflecting a highly cautious regulatory approach. Leveraged spot commodity transactions, including products that may be categorised as contracts for difference, remain in a regulatory grey area. In prac - tice, regulatory and judicial authorities may deem the trading and operation of such products to be illegal operations or unlicensed derivatives trading depend - ing on their specific structure.
clearing systems, and the interbank market. It regu - lates interbank OTC derivatives, including interest rate swaps, forward rate agreements, bond forwards and bullion OTC products on SGE, and is responsible for the oversight and development of key market infra - structures such as CFETS and SHCH. China Securities Regulatory Commission (CSRC) CSRC regulates exchange-traded derivatives such as futures and standardised options, as well as deriva - tives business conducted by CSRC-licensed entities, including securities and futures firms. It also super - vises futures exchanges and is responsible for moni - toring and addressing risks in the futures market. National Financial Regulatory Administration (NFRA) NFRA is China’s regulator for the banking and insur - ance industries. It oversees derivatives activities con - ducted by its regulated institutions, with a focus on risk management and the prudential impact of deriva - tives trading on financial institutions. State Administration of Foreign Exchange (SAFE) SAFE is China’s foreign exchange authority responsi - ble for managing cross-border capital flows and for - eign exchange transactions. It regulates the use of foreign exchange derivatives. SASAC, in its capacity as the capital contributor to central state-owned enterprises (SOEs), regulates the use of derivatives by such central SOEs under its own - ership and imposes regulatory and risk management requirements on such activities. Ministry of Finance (MOF) MOF is responsible for taxation and formulating finan - cial accounting standards related to derivatives and setting requirements for the use of derivatives by treasury-funded entities. 3.1.2 Clearing Currently, exchange-traded derivatives are cleared and settled through the relevant futures exchanges via their internal clearing departments. State-owned Assets Supervision and Administration Commission (SASAC)
3. Regulation of Derivatives 3.1 National 3.1.1 National Regulators
China’s financial system follows a sector-based reg - ulatory model, resulting in a fragmented oversight structure for derivatives. Depending on the type of market participants, derivatives, underlying asset classes and policy objectives, regulatory responsibili - ties are distributed across multiple authorities, with
potential overlaps in certain areas. People’s Bank of China (PBoC)
PBoC, as China’s central bank, oversees monetary policy, macroprudential regulation, payment and
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