Law firm calls for clarity on Chinese position limits proposal

A Chinese law firm has called for clarity on position limits and large position reporting requirements proposed in the latest consultation on China’s derivatives trading regulation.

The China Securities Regulatory Commission (CSRC) released on November 17 the second draft of the Measures for the Supervision and Administration of Derivative Trading which includes various changes to the regulation.

The various changes refer to reporting mechanisms, consolidated positions, prohibited derivative trading activities and the rules for overseas firms trading derivatives in China.

Responding to the proposals, Chinese law firm JunHe said in a note: “We are pleased to see that the second draft adopts relevant suggestions and removes the previous Article 9 of implementing position limits and large position reporting regimes on derivative trading.”

JunHe continued: “However, the second draft retains the requirements of aggregating positions of derivative and futures trading when implementing the position limits and large position reporting regimes for futures trading.”

The Chinese law firm said CSRC is keen to improve the position limits and position reporting regimes relating to futures and avoid the possibility that firms could evade futures regulation through the derivatives exemption.

JunHe said: “In our view, this means that futures exchanges may look through derivative trading and apply the “consolidated positions” to determine whether relevant trading institutions have complied with the position limits and large position reporting regimes for the futures market.”

Hong Kong Exchanges and Clearing (HKEX) said this week it expects the relaxation next month of position limits for some of the Asian group's main equity and foreign exchange derivatives to boost demand in these already growing markets.

The head of the London Metal Exchange’s user committee said in September that LME members are exploring opportunities to make the exchange’s various metals contracts more readily available to China’s vast onshore retail trading community.

Natasha Xie, a partner at the Shanghai-based law firm, said in October 2021 that China’s decision at that time to ban crypto derivatives was consistent with the Chinese regulator’s determination to maintain financial order and curb excessive speculation.