( February 23 , 1996 )
The State Council has approved the Request on Further Strengthening Supervision of the Futures Market submitted by the Securities Commission of the State Council and the China Securities Regulatory Commission, and hereby transmits it to you for the earnest implementation thereof.
Request on Further Strengthening Supervision of the Futures Market
Complying with the overall arrangement of the State Council, the Securitics Commission of the State Council and China Securities Regulatory Commission ( hereinafter referred to as CSRC ) have strengthened standardization and rectification of the futures market. After more than two years' effort, the tendency of disorderly development of our country's fixtures market has been restrained to a certain extent, market behaviors have been gradually standardized, the competence of supervision has?been fizrther improved and the pilot projects have progressed into the right orbit. However, at present, in the fixtures market there still exist some problems that should not neglected. The most prominent problems are as follows: a few big clients, relying on their capital strength, conspire to rig the market for staggering profits; a few people misappropriate public funds to speculate in future for private profits at public expense, or speculate by utilizing bank loans or call money or through collecting capital under various disguises; some individual clients deliberately violate the relevant regulations in their fixtures exchanges and even engage in financial criminal activities . These actions not only obstruct enterprises in lawful business activities such as arbitrage transactions for value maintenance but also seriously disrupt the nomial order of the futures market and hinder its healthy development. To further restrain excessive speculation and strengthen the supervision of the futures market, the following proposals are put forward: 1. Enterprises and institutions owned by the State or dominated by State capital stocks ( hereinafter referred to as State?owned enterprises and institutions) shall be engaged in arbitrage transactions for value maintenance only on commodity futures that are relevant to their production and business and shall not conduct speculation, not to mention malicious manipulation in futures transactions. State-owned enterprises and institutions which are to engage in arbitrage transactions for value maintenance shall show the futures exchange or futures brokering institutions the documents of approval obtained from the competent authority or the board of directors. Those who fail to show the documents of approval shall not be accepted by the fixtures exchange as a member or by fixtures brokering institutions as a client. If a futures exchange or a futures brokering institution violates the above mentioned stipulations, the CSRC shall, in light of the seriousness of the act, render punishments such as an order to make corrections, a fine, closing the business for rectification and cancellation of the qualification for a trial fixtures exchange or for futures brokering business, and in addition, investigate the person in charge for responsibilities. Where a State?owned enterprise or institution arbitrarily conducts fixtures transactions without approval of the competent authority or the board of กใ directors, or suffers a loss in speculation in fixtures business, the person in charge shall be investigated for responsibilities. 2. No kind of financial institution shall engage in commodity futures business for their own account or on others' behalf. Those financial institutions engaged in commodity futures business for their own account shall, within 40 business days from the date of March 4 , 1996 , square all the cash positions of the business. Those financial institutions engaged in corrmmdity fixtures business on others' behalf may not accept new clients from the date of March 4, 1996 and shall, within 40 business days thereafter, conclude all agency service by squaring the cash position or by transferring the clients' cash position to other futures brokering institutions. All fixtures exchanges shall supervise the financial institutions which are their members to conclude all the fixtures business whether for their own account or on others' behalf within the prescribed time, and shall deprive them of the membership after the settlement of their credits and liabilities. Futures brokering institutions shall supervise the financial institutions which are their clients to square their accounts within the prescribed time and shall cancel their accounts after the settlement of their credits and liabilities. No financial institution shall make out letters of security on capital intended for futures transactions. It is rigorously prohibited to use bank loans or call money for futures business. Financial institutions at all levels shall strengthen supervision and guard against the flow of credit fluids into the futures market. 3. Futures brokering companies shall not engage in futures transactions for their own account. Those engaged in such business for themselves shall, within 40 business days from the date of March 4 , 1996 , square all the cash positions for their own account for fixtures business. If a fixtures brokering company, in violation of this stipulation, continues fixtures transactions for their own account, the CSRC shall, in light of the seriousness of the act, render punishments such as an order to make corrections, a fine, closing business for rectification and cancellation of the qualification for fixtures brokering business, and in addition, investigate the person in charge for responsibilities. 4. With a view to reinforcing the supervision of the futures market and effectively preventing, investigating and dealing with acts of market manipulation, the CSRC may, in accordance with the prescribed procedures, make inquiries into the accounts opened at commercial banks or other financial institutions by fixtures exchanges, futures brokering institutions or clients. 5. All futures exchanges shall, in consideration of their own specific circumstances, establish a system of "banning entrance into the market". Those institutions or individuals who are verified to have manipulated the market or committed fraudulent conducts in futures transactions and therefore caused.serious consequences shall be publicized as "banned fi~om entrance into the market" and be reported to the CSRC, which shall then circulate a notice among all futures exchanges; all fixtures exchanges and futures brokering institutions shall immediately stop accepting their new directives for fixtures transactions except for the directive of squaring the fixtures business accounts; those who have violated the criminal law shall be transferred to the judicial organs and investigated for criminal responsibilities. For those who have been circulated by the CSRC as "banned from entrance into the market", no fixtures exchange or fixtures brokering institution shall open accounts for their futures business within three years. If a fixtures exchange or a futures brokering institution, in violation of this stipulation, accepts any of those "banned from entrance into the market", the CSRC shall render punishments such as ordering to make corrections, confiscation of illegal gains, a fine, closing business for rectification and cancellation of the qualification for a trial fixtures exchange or for fixtures brokering business, and in addition, investigate the person in charge for responsibilities. 6. With a view to bringing into full play the functioning of the futures market for value maintenance through fixtures and price identification and to preventing large amounts of capital from being utilized on small commodity futures so as to rid the fixtures market of the vicious circle of more and more rampant speculation in smaller and smaller commodity futures, certain kinds of staple commodity futures which are maturely developed in the international market and can most effectively perform the fixnction of value maintenance through futures, shall be selected in due course for trial marketing, subject to strict supervision , by a few standardized fixtures exchanges.