CHINA Law and Practice Contributed by: TieCheng Yang, Yin Ge, Lin (Avery) Huang and Weijun (Elliot) Yi, Han Kun Law Offices
For OTC derivatives, SHCH provides central clearing services for a range of products, including interest rate, foreign exchange, certain credit and commodity derivatives. Currently, SHCH clearing is mandatory for IRS transactions traded between financial institutions referencing FR007, Shibor Overnight_O/N or Shibor 3M with a tenor of five years or less, where the coun - terparties and contract terms meet SHCH’s eligibility criteria. Other standardised OTC derivatives are not yet subject to mandatory clearing. 3.1.3 Mandatory Trading Under PRC law, futures and standardised options must be traded on futures exchanges established in accordance with the law, or on other trading venues for futures transactions approved by CSRC. Futures/ standardised options trading outside of such author - ised venues is strictly prohibited. Certain interbank OTC derivatives are subject to man - datory execution venue requirements: all interbank RMB/FX transactions must be executed via CFETS. RMB IRS and bond forwards must also be executed via CFETS. 3.1.4 Position Limits Position limits apply to exchange-traded derivatives. Under CSRC rules, futures exchanges are required to establish position limit regimes in accordance with regulatory requirements. Accordingly, each exchange has set differentiated position limits based on factors such as the type of contract, the type of participant and the nature of the position (eg, hedging, specula - tion or market-making). By contrast, there is currently no unified position limit framework applicable to OTC derivatives. 3.1.5 Reporting For exchange-traded derivatives, the FDL and futures regulations require futures exchanges to establish reporting regimes covering actual control relation - ships, transactions, positions and margin usage. In accordance with these requirements, each futures exchange has developed its own reporting rules, which are binding on market participants. Specifically, program trading is subject to additional disclosure obligations. Where a program trading par -
ticipant on a stock exchange engages in return swaps or similar structured transactions with its clients and executes the related trades through its own account, it must report relevant client information in accord - ance with the rules of the stock exchange. Futures exchanges are likewise required to establish program trading reporting systems that specify the scope of reporting, reporting methods and verification proce - dures. Participants must submit the required informa - tion to the relevant futures exchange. For OTC derivatives, regulated entities, such as bank - ing and insurance institutions, securities firms and risk management subsidiaries of futures companies, are required to report OTC transaction information to their respective regulators or to designated reporting platforms, in accordance with applicable regulatory requirements. For instance, when conducting OTC gold derivatives transactions with onshore counter - parties, banking financial institutions are required to report each transaction to SGE within the prescribed time, unless the transaction is executed through Under PRC law, the business conduct requirements applicable to futures and derivatives transactions are primarily aimed at maintaining market integrity, pro - tecting investors and safeguarding systemic stability. The FDL establishes a high-level regulatory framework that prohibits manipulative, abusive or deceptive con - duct in the derivatives market. Market participants – whether institutions or individuals – are required to act fairly, refrain from market manipulation and avoid trading based on undisclosed material non-public information. They are also prohibited from dissemi - nating false or misleading information that may disrupt the orderly functioning of the futures or derivatives markets. In addition to these core prohibitions, the FDL imposes conduct-based obligations relating to transparency, risk control and accountability. Exchange transactions are conducted on a real-name basis, where desig - nated accounts cannot be used by others. Program trading must be carried out in a manner that does not compromise the security or stability of trading SGE’s designated system. 3.1.6 Business Conduct General Requirements
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