( August 1, 1998 )
In pursuance of the arrangement of the State Council, the China Securities Regulatory Commission (hereinafter referred to as the China Securities Commission) has strengthened the work of rectifying and standardizing the futures markets. Through the efforts over the last few years, the momentum toward blind development of the futures markets in China has been effectively contained, accompanied by a standardization of market conduct and strengthening supervision capability. However, there still exist at present certain problems in the futures markets which can not be ignored, among which the most outstanding ones are the excessive number of futures exchanges and fixtures brokerage institutions; nonstandard operations; a small number of institutions and individuals joining hands to manipulate the markets in search of exorbitant profits; illegally engaging in overseas fixtures and foreign exchange trading on margin; weakness of the supervision departments in supervision and backwardness of the means of supervision. With a view to strengthening supervision of the futures markets in real earnest, preventing and ameliorating market risks and ensuring the smooth performance of experiments in the futures markets, the relevant questions are hereby notified as follows in the light of the spirit of the national conference on financial work and the unified arrangement of the Party Central Committee and the State Council:
I. Continuing Rectification, Dissolution and Merger of Futures Exchanges
(I) The existing 14 fixtures exchanges shall be rectified, dissolved and merged and only 3 futures exchanged shall be retained in Shanghai, Zhengzhou and Dalian in accordance with the principle of "continuation of the experiment, strengthening of supervision, standardization according to law and avoidance of risks". The futures exchanges retained shall practise centralized uniform management and fixtures exchanges shall be put under the direct administration of the China Securities Commission, as is done in the management system of stock exchanges. The general manager and deputy general manager (s) of a futures exchange shall be appointed by the China Securities Commission, and the chairman and vice chairman (chairmen) of the board of directors shall be nominated by the China Securities Commission and elected by the board of directors.
(II) Detailed measures of adjustment are as follows:
1. Merging in the same city. After appraisal of properties and funds, the Shanghai Metal Exchange, Shanghai Commodity Exchange and Shanghai Foodgrains and Oils Commodity Exchange shall be merged into the Shanghai Futures Exchange in accordance with the principle of "unified institutions, unified finance, uniform trading, uniform settlement and uniform rules".
2. Networking in different places. Excluding the maintenance of the shanghai Futures Exchange, Zhengzhhou Commodity Exchange and Dalian Commodity Exchange, other futures exchanges shall be reorganized as company?system local trading halls or local offer halls and conduct net trading with the above?mentioned 3 futures exchanges. Local trading halls or local offer halls shall provide the members of futures exchanges with trading seats in different cities and services of note issuance and shall not engage in listing futures categories, shall not engage in match?making in trading and shall not handle settlement business. Local trading halls or local offer halls shall enjoy legal person status and independently bear the debtor?creditor relationship of prior futures exchanges.
3. To achieve a stable transition, the futures exchanges not to be retained can also be reorganized by adopting various modes: first, they may be reorganized as fixtures brokerage firms; and second, they may be reorganized as securities dealing agencies where conditions obtain.
II. Partial Cancellation of Futures Trading Categories of Commodities and Increment in the Futures Trading Guaranty Funds for a Part of Commodity Varieties
To give full play to the functions of futures markets in discovering prices and hedging and to fizrther curb over?speculation, the number of commodity futures trading varieties shall be cut down from 35 to 12, with 23 categories canceled. 12 commodity varieties of copper, aluminum, Soya bean, wheat, soya bean scum, green bean, natural rubber, plywood, indicia rice, beer barley, red bean and peanut kernel shall be retained.
Increments in the fixtures trading guaranty funds of partial commodity varieties. The rate of minimum trading guaranty fiends shall be maintained at the existing 5 % without change for the 3 commodity varieties of copper, aluminum and soya bean which function better in hedging and are not easy to scalp , the rate of minimum trading guaranty funds for the other 9 commodity varieties shall be raised to 10% . The Shanghai Futures Exchange, Zhengzhou Commodity Exchange and Dalian Commodity Exchange shall re?design the fixtures contracts and engage in listing and trading upon the verification and approval of the China Securities Commission. Henceforth, the China Securities Commission may in the light of market demand adjust the listing varieties and fix the rate of minimum trading guaranty funds.
III. Banning Illegal Futures Brokerage Activities, Sorting out and rectifying Futures Brokerage Agencies
(I) The fixtures brokerage qualification of members of all non?futures brokerage firms is revoked and no agency or individual shall engage in fixtures brokerage business without the approval of the China Securities Commission. Departments for industry and commerce administration shall, in conjunction with the China Securities Commission, conduct in a serious manner investigation and handling with respect to agencies or individuals engaging in illegal fixtures brokerage business under various names and impose a firm ban thereon.
(II) The rate of minimum registered capital of futures brokerage firms shall be raised and merger and reorganization of fixtures brokerage firms shall be promoted to achieve scale operations. The rate of minimum registered capital of a futures brokerage firm shall be worked out separately by the China Securities Commission.
(III) No futures brokerage firm shall engage in its own futures business operation; further sorting out and rectification shall be conducted with respect to agency business and all links standardized in trading so as to strictly control risks.
(IV) Annual inspection system shall be perfected, futures brokerage firms not in keeping with the provisions nullified, and adequate support rendered to large?size brokerage firms with standardized operations and good credit rating.
IV. Strict Control over Overseas Futures Trading
The State Council hereby reiterates once again that no agency or individual shall, without approval, engage in overseas futures trading on its/his/her own and no futures brokerage firm shall engage in overseas futures business. For the small number of import and export enterprises which have the actual requirements to exploit overseas fixtures markets in hedging, the China Securities Commission shall, in conjunction with the State Economic and Trade Commission and the Ministry of Foreign Economic Relations and Trade, carry out strict examination and verification and upon submission to and approval by the State Council, issue overseas futures business licences. No enterprise not obtaining the overseas fixtures business licence shall engage in overseas futures trading under any pretext or in any form. Enterprises having obtained overseas fixtures business licences shall be pemutted to engage in hedging in overseas fixtures markets only and shall not engage in speculative trading. The State Economic and Trade Commission and the Ministry of Foreign Economic Relations and Trade shall, in conjunction with the China Securities Commission, determine the trading varieties and the maximum fixtures trading turnover in accordance with the import and export commodity categories and actual trade volume of those enterprises, and the China Securities Commission shall designate their overseas futures brokerage agencies and overseas futures exchanges.
Chinese?capital agencies Overseas shall be prohibited to engage in overseas futures trading on their own without approval, those in violation thereof shall be investigated for the liability of the personnel involved. The State Economic and Trade Commission and the Ministry of Foreign Economic Relations and Trade shall conduct sorting out and rectification of industrial and foreign trade enterprises already engaging in overseas futures trading and report the results of rectification to the State Council and dispatch a copy simultaneously to the China Securities Commission.
The China Securities Commission shall, in conjunction with the departments concerned, strengthen the supervision over illegal overseas futures trading. The China Securities Commission shall, in conjunction with the departments concerned, investigate and handle cases involving securities operating agencies' and futures brokerage agencies' operations in overseas futures in vio?lauion of law; the State Administration for Industry and Commerce shall, in conjunction with the departments concerned, investigate and handle cases involving other agencies illegally engaging in overseas futures. Stem penalties shall be meted out to enterprises and Chinese?capital agencies overseas engaging in overseas futures trading on their own in violation of the afore?said provisions, persons?in?charge and persons directly responsible of the enterprises shall have imposed a discipline sanction from removal from office to expulsion by their higher competent departments, and die leaders of their competent departments shall be investigated for their responsibilities,; where a crime has been constituted, the case shall be referred to the judicial organ for the investigation of criminal liability according to law.
V . Hastening Legislation and Further Strengthening Supervision acrd over Futures Markets
As futures markets are highly risky and speculative, legislation for future" markets shall be hastened to realize supervision in accordance with law. The Legislative Affairs Office of the State Council and the China Securities Comnussion should make good use of time to draft the regulations on futures trading administration to be submitted to the State Council for review. The China Securities Commission should further step up supervision over futures markets, standardize and unify the roles of futures markets on trading, settlement and delivery. Financial institutions, institutions, Party and government organs are strictly prohibited to participate in futures trading, State?owned enterprises are strictly prohibited to engage in futures trading in violation of regulations, credit and loan funds and financial funds are strictly prohibited to enter futures markets in any form, and financial institutions shall not provide financing or guaranty for futures trading. No institution shall engage in financial fixtures trading without approval. Foreign exchange trading in violation of regulations by domestic financial institutions shall be investigated and handled in accordance with law. Internal management of and external supervision over the financial institutions engaging in forward exchange as well as straddling, exchange rate swap and other businesses shall be strengthened.
As of the date of issuance of this Circular, all fixtures exchanges shall stop forthwith rolling out any new contract, but trading may be conducted to the last trading day for the contracts already listed. As of January 1, 1999, operations shall start officially in accordance with the new fixtures commodity varieties and rate of trading guaranty fiends. The China Securities Commission should fitrther step up supervision and intensify its efforts in law enforcement. All regions and departments should earnestly implement the spirit of this Circular, exert efforts in coordination and render active support for the China Securities Commission in accomplishing the work of futures markets standardization and rectification so as to maintain market and social stability.