ISDA says the revised draft incorporates several comments it made in its submission to the consultation on the first draft.
China’s NPC (National People’s Congress) has released a second draft of its futures law for consultation.
The first draft was released for consultation earlier this year, seeking to improve the functioning of China’s futures market, promote a more market-based allocation of resources, safeguard against financial risk, and align the regulatory framework with international norms.
The draft had included provisions on close-out netting and performance guarantees, issues which foreign FIs have long sought clarity on in terms of legal certainty and judicial recognition.
The law also raised the penalties for illicit acts such as insider trading and market manipulation, which remain in the new draft.
The second draft of the law has been renamed as the Futures and Derivatives Law, as it governs both futures and OTC derivatives.
According to ISDA (International Swaps and Derivatives Association), the revised draft incorporates several comments the association made in its submission to the consultation on the first draft.
These include a revised definition of OTC derivatives to include options, forwards, swaps and any combination of these products. The list of underliers in the original draft has also been removed, indicating that the law will cover any OTC derivatives regardless of the underlier.
The protection for close-out netting has also been expanded to cover the suspension of a counterparty’s termination right during bankruptcy proceedings, in addition to a protection against the bankruptcy administrator’s power to cherry pick or invalidate transactions.
A new clause has also been added to protect settlement and collateral arrangements in respect of centrally cleared OTC derivatives transactions.
ISDA notes that the filing requirement has been retained, so the bill still requires the master agreement template to be filed with Chinese regulators in order to enjoy close-out netting protections during bankruptcy proceedings.
The consultation, available here, is open for comment until 21 November.
