CHINA Law and Practice Contributed by: TieCheng Yang, Yin Ge, Lin (Avery) Huang and Weijun (Elliot) Yi, Han Kun Law Offices
Financial Derivatives Transaction Master Agreement formulated by NAFMII to document their transactions of interest rate, foreign exchange, bond, credit and gold derivatives, as well as combinations thereof. NAFMII has also introduced an updated version of the master agreement to accommodate cross-border transactions. For derivatives transactions conducted by securities firms, futures companies and fund management com - panies in the OTC market, the latest Master Agree - ment for Derivatives Transactions in the China Securi - ties and Futures Markets jointly issued by SAC, CFA and AMAC is commonly adopted. However, the SAC master agreement is not mandatory, and counterpar - ties may alternatively choose to adopt the ISDA Mas - ter Agreement depending on the nature of the transac - tion and the parties involved. It is not uncommon for financial institutions to develop their own master confirmations in derivatives transac - tions. 4.1.2 Margins To document margin arrangements, parties using the NAFMII Master Agreement typically adopt the Perfor - mance Assurance Documents formulated by NAFMII, which include both pledge and title transfer structures. For transactions documented under the ISDA Master Agreement, it is common to use the ISDA CSA. By contrast, the SAC Master Agreement currently does not have a set of standardised margin documentation. As for regulatory requirements, initial margin (IM) and variation margin (VM) obligations for non-centrally cleared derivatives were not enforced in China until early 2025, when NFRA released the NFRA Mar - gin Rules. The NFRA Margin Rules apply solely to non-centrally cleared derivatives where at least one counterparty is one of the following NFRA‑regulated financial institutions or products: banking financial institutions (including foreign bank branches and subsidiary banks in China), insurance financial institu - tions, financial holding companies approved by PBoC, and asset management products issued by any of the foregoing institutions. The NFRA Margin Rules do not extend to non-centrally cleared derivatives trans - acted solely between non‑NFRA‑regulated financial
institutions, such as those regulated by CSRC (includ - ing securities firms, futures companies, mutual fund managers and their asset management products), or between such entities and non‑financial institu - tions. These rules introduce a phased implementation timeline for NFRA-regulated financial institutions: VM requirements will take effect from 1 September 2026, while IM requirements will be phased in over three stages from 1 September 2027 to 1 September 2029. At present, there is no standardised set of contrac - tual documents addressing the newly introduced PRC regulatory margin requirements. In-scope finan - cial institutions are expected to revise or supplement their existing documentation frameworks to reflect and comply with the new margin regime. 4.1.3 Other Agreements For bond repurchase transactions in the interbank market, PBoC requires market participants to adopt the Master Agreement for Bond Repurchase Transac - tions in the China Interbank Market, formulated by NAFMII. This agreement covers both pledged bond repurchase transactions and outright bond repur - chase transactions. For bond lending activities in the interbank bond market, NAFMII has also developed a Master Agreement for Bond Lending Transactions in the China Interbank Market; however, the use of this agreement is not mandatory. In cross-border transactions, depending on the spe - cific transaction structure and counterparties involved, it is also common to adopt international documenta - tion standards such as GMRA, MRA, MSFTA, GMSLA or MSLA. 4.2 Clearing Documentation In China, clearing brokers (typically financial institu - tions acting as clearing members under SHCH) docu - ment clearing relationships using the CCP Clearing Agreement formulated by SHCH. This agreement defines the legal frameworks between clearing bro - kers and the CCP. General Clearing Members (GCMs) should also enter into a CCP Service Agreement for Client Clearing with Non-Clearing Members (NCMs) for NCMs to participate in one or more CCP clearing services. These documents do not directly depend on the derivative product class – be it interest rate,
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