An Update on China's Derivatives Market

Abstract

China's derivatives market has undergone a relatively quiet phase in the past year, in contrast to the “great leaps forward” in 2004, when the China Banking Regulatory Commission allowed banking institutions to trade a wide range of derivatives, and in 2005, when the People's Bank of China liberalized the conduct of domestic currency forward and swap transactions. Today, the Chinese derivatives market is still in its infancy, and most products available are still quite “low tech.” However, recent developments in other related areas appear to foretell that the market may undergo further, though gradual, development and advancement. This article looks at three sectors of the Chinese derivatives market: cross-border derivatives transactions conducted under the qualified domestic institutional investors (“QDII”) scheme, the domestic inter-bank market, and the domestic exchange market. It also examines the impact of the two latest key regulations on derivatives transactions in China: the PRC Enterprise Bankruptcy Law (which only became effective on June 1, 2007) and the revised Interim Measures on the Administration of Derivatives Transaction Business of Financial Institutions (which only became publicly accessible on the CBRC website at the end of July 2007).

TOPICS: Derivatives, emerging