China’s regulator publishes new draft derivatives guidelines

The new guidelines, which are open for consultation until October 25, are aimed at clarifying some of the legal grey areas that currently exist in the Chinese derivatives market, by specifying which institutions can trade derivatives, as well as outlining the licensing procedures and risk management requirements for derivatives traders.

Under the new draft guidelines – the first update since the initial consultative document in July 2002 – financial institutions will be able to trade foreign currency-denominated interest rate, credit and currency derivatives on behalf of clients and on their own account once they have received approval from the CBRC. Those banks applying for licences must have sound internal risk management and control systems, experienced dealers, and internal auditing and reporting systems.

Crucially, the new regulations state that those banks trading their own account can use derivatives for hedging and for ‘arbitrage-like’ trades to generate profit. This marks a seismic shift in attitude by the Chinese authorities. Currently, derivatives transactions can only be used for hedging and cannot be used for speculative purposes, a rule that has been in place since 1995.

The draft guidelines also define what a derivative is – an important step as there is currently no legal definition in China, creating uncertainty over what products are subject to the hedging-only requirement. Under the new guidelines, derivatives are defined as a transaction where the price is determined by reference to one or more underlying assets or indexes, including futures, forwards, swaps and options.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

Stemming the tide of rising FX settlement risk

As the trading of emerging markets currencies gathers pace and broader uncertainty sweeps across financial markets, CLS is exploring alternative services designed to mitigate settlement risk for the FX market

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here