Interim Procedures for the Administration of the Derivative Transactions of Financial Institutions (Revised in 2007)
Interim Procedures for the Administration of the Derivative Transactions of Financial Institutions (Revised in 2007)
Interim Procedures for the Administration of the Derivative Transactions of Financial Institutions (Revised in 2007)
Order of the China Banking Regulatory Commission [2007] No.10
July 3, 2007
(effective in accordance with the Order of the CBRC [2004] No. 1, amended in accordance with the Decision on Amending the Tentative Procedures for the Administration of the Derivative Transactions at the 55th chairman's meeting of the CBRC on December 28, 2006.)
Chapter I General Provisions
Article 1 With the goal of normalizing the administration of the derivative transactions of financial institutions and effectively controlling the risks of financial institutions that conduct derivative transactions, these Procedures are formulated in accordance with the Banking Supervision 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 purposes of these Procedures, "financial institutions" refer to certain legal persons such as banks, trust investment companies, financial companies, lease finance companies, and automotive financing companies that are established within the territory of the People's Republic of China, as well as the branch offices of foreign banks established within China (hereinafter referred to as foreign banks).
Article 3 For the purposes of these Procedures, "derivatives" refer to a kind of financial agreement whose value depends on one or many underlying assets or indicators. The basic types of such agreements include forwards, futures, swaps (exchange) and options. Derivatives also include structured financial instruments which exhibit one or more of the features of the aforementioned basic types.
Article 4 The derivative transactions of financial institutions referred to in these Procedures may be classified into two categories:
1. the derivative transactions carried out by financial institutions in order to manage their own asset or debt risk, or earn profits. When financial institutions conduct these sorts of transactions, they are considered as the end users of relevant derivatives.
2. the derivative services provided by financial institutions to their clients (including other financial institutions). The financial institutions that conduct these sorts of transactions are considered to be derivative brokers. Those brokers which can provide derivative quotations and transaction services to clients as well as other brokers are considered to be derivative market makers.
Article 5 The China Banking Regulatory Commission (hereinafter referred to as CBRC) is the institution authorized to supervise and regulate the financial institutions that conduct derivative transactions. Financial institutions which intend to conduct derivative transactions shall be subject to the examination and approval of the CBRC and accept their supervision and inspection.
Financial institutions which acquired the qualification to conduct derivative transactions shall engage in business activities corresponding to itself risk management ability. Prior to engage in a complicated derivative transaction which is initially introduced to the domestic market, financial institutions shall submit relevant materials to the regulatory departments and consult the opinions from the regulatory departments in writing.
Article 6 Financial institutions which conduct derivative transactions related to foreign exchange, stocks, and commodities or other transactions on an exchange shall abide by the national regulations governing the administration of foreign exchange and other relevant regulations.
Chapter II Administration of Market Entry
Article 7 A financial institution applying to conduct derivative transactions shall meet the following requirements:
1. having well-established risk management and internal control systems for derivative transactions;
2. having a well-established derivative transaction management system with automated linking of transaction stages and a perfected real-time risk management system;
3. having a person in charge of derivative transactions who has a minimum of 5 years experience directly participating in derivative transactions and risk management with no incidents on record;
4. having two or more transaction professionals who have conducted derivative transactions or related transactions for at least two years and have received special training relevant to derivative transactions; one or more risk management professional(s); and one or more risk model researcher(s) or risk analyst(s); individuals assuming one of the above-mentioned positions shall have no incidents on record and may not assume two posts concurrently;
5. having a proper transaction location and relevant equipment;
6. in the case where a foreign bank applies for approval to conduct derivative transactions, it shall be formally authorized by its parent bank (regional head office) and, its country of origin shall have a regulatory framework for derivative transactions and the regulatory authority of its country of origin shall have corresponding regulatory ability; and
7.
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