Interim Measures for Administration of Derivative Product Transactions of Banking Financial Institutions (2011 Revision)
Interim Measures for Administration of Derivative Product Transactions of Banking Financial Institutions (2011 Revision)
Interim Measures for Administration of Derivative Product Transactions of Banking Financial Institutions (2011 Revision)
Order of the China Banking Regulatory Commission [2011] No. 1
January 5, 2011
Amended in accordance with the Decision on Amending the Interim Measures for Administration of Derivative Product Transactions of Financial Institutions promulgated by the 101st executive meeting of the China Banking Regulatory Commission
Chapter I General Provisions
Article 1 For the purposes of regulating the administration of the derivative product transactions of financial institutions and effectively controlling the risks of financial institutions that conduct derivative product transactions, these Measures are formulated in accordance with the Banking Regulatory Law of the People's Republic of China, the Law of the People's Republic of China on Commercial Banks and other relevant laws and administrative regulations.
Article 2 For the purpose of these Measures, "banking financial institutions" shall refer to the commercial banks, urban credit cooperatives, rural credit cooperatives and other financial institutions and policy banks that are legally established and absorb public deposits. These Measures shall apply to derivative product business engaged by duly organized financial asset management companies, trust companies, enterprise group financial companies, financial leasing companies as well as other banking financial institutions that are established upon approval by the China Banking Regulatory Commission (hereinafter referred to as "CBRC").
Article 3 For the purpose of these Measures, "derivative products" shall refer to a kind of financial agreement whose value depends on one or more underlying assets or indicators. The basic types of such agreements include forwards, futures, swaps and options. Derivative products also include structured financial instruments which exhibit one or more of the features of the aforementioned basic types.
Article 4 For the purpose of these Measures, derivative product transactions of banking financial institutions can be classified into two types in terms of business goal:
1. Hedging derivative product transactions, i.e. derivative product transactions initiated by banking financial institutions for the purposes of avoiding credit risks of self-owned assets and liabilities, market risks and current risks. Such transactions shall comply with the hedging accounting rules and be subject to bank account management.
2. Non-hedging derivative product transactions, i.e. derivative product transactions other than hedging derivative product transactions, including transactions initiated by the clients and offered by banking financial institutions to meet such clients' needs and transactions conducted by banking financial institutions to hedge relevant risks of the foregoing transactions; market-making transactions conducted by banking financial institutions at the quoted prices with other market participants so as to fulfill their market-making obligations in continuously providing buying and selling prices; and self-operated transactions initiated by banking financial institutions to make profits with its self-owned capital according to their judgment on market prospects. Such transactions shall be subject to transaction account management.
Article 5 For the purpose of these Measures, "clients" shall refer to individual clients and institutional clients other than financial institutions. In the event the banking products sold by banking financial institutions to clients have the nature of derivative products, the design, transactions and management thereof shall be governed by these Measures, and the client access and sales link thereof shall be governed by relevant provisions on banking business of CBRC. The risk evaluation and sales link of individual derivative product transactions shall be governed by relevant provisions on individual banking business.
Article 6 Derivative product transactions conducted by banking financial institutions shall be subject to approval, supervision and inspection by CBRC.
Banking financial institutions having obtained the qualification to conduct derivative product transactions shall engage in business appropriate to their risk management capacity.
Article 7 Banking financial institutions engaged in derivative product transactions relating to foreign exchange, commodities, energies and stock right as well as in derivative product transactions in the field shall have the derivative product transaction qualification approved by CBRC and shall abide by foreign exchange administration rules and other relevant provisions of the state.
Chapter II Market Access Management
Article 8 The qualification of banking financial institutions to conduct derivative product transactions can be classified into:
1. Basic qualification, with which one may only engage in hedging derivative product transactions; and
2. General qualification, with which one may, in addition to derivative product transactions that those having the basic qualification can engage in, conduct non-hedging derivative product transactions. The regulatory authority may, in light of the risk management capacity of banking financial institutions, implement differing qualification management in such respects of the specific business modes and product varieties of said banking financial institutions.
Article 9 Banking financial institutions applying for the basic qualification shall satisfy the following conditions:
1. Having a sound risk management system and an internal control system for derivative product transactions;
2. Having at least two (2) dealers who have received more than half year special training on expertise of derivative product transactions and have engaged derivative product transactions or relevant transactions for more than two (2) years, at least one (1) relevant risk management personnel, one (1) risk model researcher or risk analyst, and at least one (1) personnel who is familiar with accounting practice procedures and rules. All of the above personnel shall have specific posts and may not hold posts concurrently or have bad records;
3. Having appropriate places and equipment for transactions;
4. Having a specific department and relevant professionals to deal with legal affairs and to be responsible for checking compliance of internal control rules;
5. Satisfying prudential regulatory indicator requirements of CBRC; and
6. Other requirements set out by CBRC.
Article 10 Banking financial institutions applying for the general qualification shall, in addition to the abovementioned requirements of basic qualification, satisfy the following requirements:
1. Having a sound business dealing system and a real time risk management system that automatically connects the front, middle and back stage of the derivative product transactions;
2. Management of the derivative product transactions shall have more than five (5) years of qualification in directly engaging in derivative product transactions or risk management and have no bad records;
3. Having a strict business separation system, ensuring that the market information, risk management and accounting of losses and gains of hedging business and non-hedging business are effectively separated;
4. Having a sound management framework for market risk, practice risk, credit risk and other risks; and
5. Other requirements set out by CBRC.
Article 11 Foreign-invested banks to engage in derivative product transactions shall submit application materials signed by their authorized signature to local regulatory authority for review and upon consent by the same, report to CBRC for examination and approval. Wholly foreign owned banks and Sino-foreign equity joint venture banks shall submit application materials to local regulatory authority uniformly by their head offices. Foreign banks to engage in derivative product transactions by more than two of their branches in China shall submit application materials uniformly by their managing branches in China to local regulatory authority for review and upon consent by the same, report to CBRC for examination and approval.
Branches of foreign banks applying for conduct of derivative product transactions shall be duly authorized by the head offices (or regional headquarters).
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