CHINA Trends and Developments Contributed by: Tao (Andy) Qin, Yanhua (Xavy) Xu, Ran (Addie) Cheng and Tianbing (Yasmin) Zhou, DeHeng Law Offices
The Measures for Futures Companies aim to promote the transformation of futures companies into compre - hensive service providers, accelerate industry con - solidation, and enhance their ability to serve the real economy and resist risks by relaxing restrictions on the scope of businesses such as overseas broker - age, proprietary trading and derivatives trading, while strengthening the requirements for net capital and shareholder qualifications. For futures companies, opportunities and challenges coexist. While being granted a broader business scope, they should fur - ther clarify their development strategies, improve their professional capabilities, pursue both horizontal and vertical expansion, strengthen their risk prevention capabilities and develop differentiated competitive advantages through building a pool of highly profes - sional talents and improving corporate governance mechanisms. In this way, they can achieve a smooth ongoing adaptation to the ever-changing capital mar - ket environment. Trends and Prospects With the introduction of the Futures and Derivatives Law and the subsequent Measures for the Supervision and Administration of Derivatives Trading, as well as the revision of the Measures for the Supervision and Administration of Futures Companies, China’s futures and derivatives markets have entered a stage of high- quality development with intensive supervision after more than three decades of exploration. For the capi - tal market and the futures industry, seven major trends are expected to emerge. Firstly, the comprehensive benefits enjoyed by the leading futures companies will become more promi - nent. The new business scope threshold will force futures companies to improve their capital strength and market competitiveness by enriching their busi - ness scope, and the strong regulatory requirements will prompt them to improve their compliance level in addition to their capital strength to meet all kinds of rating requirements and avoid marginalisation due to corporate governance issues. For these reasons, the futures market may face a “Matthew effect” whereby the strong become stronger and the weak become weaker.
Secondly, the demand for professional personnel will remain sustained. Whether for SMEs with insufficient experience in the financial investment field or for derivatives business institutions, the talents of such professionals should be well matched. They should include not only people with trading-oriented talents, but also personnel with professional capabilities in legal compliance, risk control, computer operations, etc. In the futures and derivatives trading markets, having a solid talent reserve and appropriate profes - sional staffing will be particularly crucial. Thirdly, the market functions of the futures and deriva - tives markets will be deepened, and their ability to serve the real economy will continually improve. The formulation of laws and measures including the Futures and Derivatives Law, the Measures for Deriv - atives Trading and the Measures for Futures Com - panies will effectively encourage futures companies and derivatives business institutions to continually enhance their professional capabilities and stimu - late the industry’s innovative vitality. This will further enable the futures market to exert important roles in various aspects such as risk management, price dis - covery, inventory management and financing, making it an important tool for enterprises in the real economy to hedge risks and optimise resource allocation in their development. Furthermore, the linkage between the futures and spot markets and the integration of indus - trial chains are also inevitable trends. By innovating futures and options products, enterprises can more flexibly manage inventory, conduct investment and financing, and realise the co-ordinated development of upstream and downstream in the industrial chain. Fourthly, the futures and derivatives markets will become more transparent and standardised, and compliance requirements for market participants become unprecedentedly stringent. While regula - tions allow the development of customised deriva - tives, they also strengthen filing requirements. The Measures for Derivatives Trading prohibit excessively complex structured products and promote the precise alignment of OTC options, swaps and other instru - ments with the needs of the real economy. Among these provisions, rules such as prohibiting account lending and requiring deep verification are of great significance for improving market transparency, pre -
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