[Jingwei V] China's futures and derivatives legislation will help improve global pricing power

  On April 20, the 34th meeting of the Standing Committee of the 13th National People's Congress reviewed and voted to approve the "Futures and Derivatives Law of the People's Republic of China" (hereinafter referred to as the "Futures and Derivatives Law"), which will be effective in August 2022. Effective from the 1st.

Li Zhengqiang, a researcher at the School of International Business and Economics of the University of International Business and Economics, said in an exclusive interview with the Sino-Singapore Jingwei Research Institute that the futures and derivatives law will better serve the real economy for China's futures and derivatives markets, promote high-level opening up, and enhance the pricing power of bulk commodities. Steady progress towards a world-class futures and derivatives market provides legal protection and makes up for the shortcomings of futures and derivatives legislation in the financial market.

China can use this to improve the pricing power of futures derivatives

  "The Futures and Derivatives Law stipulates that the listing of futures products adopts the registration system, which changes the institutional arrangement in the past that the listing of futures and options products requires regulatory agencies to seek the opinions of relevant departments and industry associations and then report to the State Council for approval before approval, and greatly simplify the listing procedures. , to speed up the pace of listing, this is a major reform. It will help 'early listing, early cultivation, and early functioning'." Li Zhengqiang said.

  Li Zhengqiang said that at present, the trading scale of China's commodity futures has ranked first in the world for many consecutive years, and the commodity derivatives market occupies more than half of the global market share and occupies an extremely important position in the global market.

China can take this opportunity to further promote the construction of China's futures derivatives market and improve its global pricing power.

  According to data from the China Futures Association, the cumulative trading volume of the national futures market in 2021 will be 7.514 billion lots, and the cumulative trading volume will be 581.20 trillion yuan.

China is already the world's largest futures market for agricultural products, non-ferrous metals, coke, thermal coal and black building materials.

  "The capital market speaks of 'system establishment, non-intervention, and zero tolerance', and the most basic and important 'system establishment' is legislation. At present, we have entered a new stage of comprehensively promoting the rule of law, and we must establish a regulated, transparent, open, and effective Vibrant and resilient capital market, improve the basic system of the capital market; improve a modern financial system that is highly adaptable, competitive, and inclusive, and effectively prevent and resolve financial risks." Li Zhengqiang said that the futures and derivatives law is China's Promoting the basic construction of the development of the capital market is also one of the inherent requirements to ensure and enhance the national economic governance system and governance capacity.

China's experience in risk prevention and control of futures and derivatives leads the world

  "After 30 years of practice and exploration, drawing on overseas experience and combining China's reality, China has embarked on a very unique development path for the futures and derivatives market with Chinese characteristics, especially in the arrangement of risk prevention and control systems. The stable operation of the market and the promotion of market functions have played a very important role." Li Zhengqiang said, "Through the thinking triggered by the London nickel incident, we can see that China's institutional arrangements for risk prevention and control in the futures derivatives market are complete. , effective, and can be said to have a leading position in the international market.”

  Li Zhengqiang said that the expansion of the futures derivatives market and the construction of an international pricing center and risk management center urgently need legislative escort.

The Futures and Derivatives Law summarizes the development practice of the industry for 30 years, and draws on overseas experience to fix the relevant institutional arrangements in the form of law, which will greatly consolidate the institutional arrangements for risk prevention and control in China's futures market, improve the ability of the whole market to prevent and control risks, and earnestly adhere to the law. The bottom line is that there is no systemic risk.

  "Our price limit system, abnormal transaction monitoring system, margin and fee adjustment system, etc., as well as the unique Chinese characteristics of the futures market monitoring center system, all prove that China has achieved effective prevention and control of futures and derivatives market risks. The very good effect has ensured that the market has withstood a series of risk shocks, such as the Asian financial crisis in 1998, the global financial crisis in 2008, the abnormal volatility of China's stock market in 2015, and the huge impact of the new crown pneumonia epidemic." Li Zhengqiang said.

  According to the Futures and Derivatives Law, the prevention and resolution of market risks is the top priority, and it is stipulated that futures trading should implement risk control systems such as position limit, no-debt settlement on the day, and forced liquidation, and clarify the legal status of the central counterparty of futures settlement institutions; improve futures Market risk identification, prevention and disposal system, strengthen the front-line supervision responsibilities of futures trading venues, stipulate emergency measures for abnormal situations and emergency response measures, improve the market monitoring and monitoring system, and build a three-dimensional and diversified risk prevention and control system; strengthen supervision and management , increase the penalties for violations of laws and regulations, and significantly increase the cost of violations of laws and regulations.

It also draws full reference to international standard rules

  Li Zhengqiang said that the Futures and Derivatives Law also fully draws on the internationally accepted international standard rules for same-day debt-free settlement and margin trading.

  Li Zhengqiang introduced that building a global commodity pricing center and risk management center denominated in RMB is an important starting point for promoting the internationalization of the RMB and serving countries to participate in global economic governance.

In 2018, China's crude oil futures, iron ore futures, and PTA (purified terephthalic acid) futures have been opened to the outside world, and the establishment of a global pricing center and risk management center has been accelerated. futures market.

For example, the qualified central counterparty status (QCCP) of the exchange can reduce the risk capital provision of financial institutions from 1250% to 20%, but even if the China Securities Regulatory Commission has recognized the domestic exchange as a QCCP, foreign institutions will also There is no relevant legislation in China, and there are doubts about the status of the QCCP in the Chinese market. The PFMI (Principle of Financial Market Infrastructure) self-assessment report of domestic exchanges can only be assessed as "substantially consistent" in terms of legal basis.

At the same time, the long-term absence of the upper-level law in the futures market has also brought difficulties to cross-border supervision and cross-border cooperation. The construction of the over-the-counter market in China's derivatives market has begun, and the promulgation of the Futures and Derivatives Law will completely solve the above problems.

  At the same time, the Futures and Derivatives Law incorporates derivatives trading into the scope of legal adjustment, fully absorbs the consensus reached by the G20 on strengthening derivatives supervision after the global financial crisis, draws on the experience of international mature markets, and establishes a single master agreement, termination The basic system of derivatives transactions such as netting settlement and transaction report library, and authorized the State Council to formulate specific management measures, so that the development of the derivatives market "has laws to follow".

  "The Futures and Derivatives Law provides a legal guarantee for the high-level opening of China's financial market, enables overseas market participants to have more confidence in the Chinese market, and enables international investors to have a clearer, better understanding of, and better understanding of, China's rules and basic institutional arrangements. Confidence." Li Zhengqiang said that in the future, more overseas investors can be attracted to participate in the Chinese market and trade with domestic traders to form RMB-denominated commodity futures prices and improve the international representation of futures prices, thereby promoting RMB-denominated futures prices. Futures prices can become price benchmarks in international trade, which is conducive to building an international pricing center for bulk commodities in China.

(Singapore Jingwei Wang Lei))

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