On November 23, 2018, the China Financial Futures Exchange (CFFEX) released the amended Measures of China Financial Futures Exchange on Risk Management (the “Measures”) following extensive discussions and consultations. The amended Measures provides a clear upper limit of additional contribution to the settlement guarantee fund and will take effect on November 26, 2018.
The settlement guarantee fund is a standard risk management tool applied globally and refers to the common guarantee fund contributed by clearing members according to the rules of an exchange to mitigate the default risks of such members. The amended Measures provides an upper limit of additional contribution to the settlement guarantee fund, setting forth that “For any non-defaulting clearing member who is required to make additional contribution to the settlement guarantee fund, the cumulative amount of such required additional contribution over the 30 consecutive calendar days up to and including the day its settlement guarantee fund is utilized shall not exceed 1 time the original amount of settlement guarantee fund required of the clearing member.”
A CFFEX official commented that the settlement guarantee fund is a risk management tool used under extreme market conditions by an exchange acting as the central counterparty. CFFEX has drawn on the best practices of international markets and, by prescribing an upper limit to additional contributions, further clarifies the obligations of clearing members in regard to the settlement guarantee fund. This amendment is in line with the international principles of market regulation and marks a proactive step taken by CFFEX to improve its risk management and market access. Following the release of the amended Measures, CFFEX will closely monitor its financial futures market to ensure stable, orderly operation.