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Optimizing Institutional Arrangement of Future Exchanges for Better Frontline Supervision of Rule Violations and Defaults

On September 21, 2017, China Financial Futures Exchange (hereinafter referred to as CFFEX) organized a seminar on legal issues relating to rule violations and defaults encountered by future exchanges. Nearly 20 experts from regulatory authorities, judiciary organs, commodity exchanges and law firms participated in the event. Cao Yue, member of the CPC Committee and EVP of CFFEX, attended the seminar and delivered a speech.

Cao Yue noted in his speech that self-regulation of future exchanges is an effective supplement to the administrative regulation, and is the foundation for stable operation and healthy development of the market. As a market operator and self-regulatory organization, CFFEX has always adopted the concept of strict and comprehensive supervision in accordance with law, enhanced its functions in frontline supervision and self-regulation, improved the compliance of its members, gradually established a regulatory model of trading behaviors “with members playing the central role”, and dealt with of rule violations and defaults in a stringent manner. In recent years, with the development of the financial futures market, new trends and issues have emerged in violations and defaults. Meanwhile, effective self-discipline measures unanimously adopted in mature overseas markets, such as monetary penalties , are only used in a limited scope in China due to the lack of consensus among relevant parties. Therefore, it is necessary to carry out an in-depth study of the relevant issues, so as to further improve and optimize the institutional arrangement for the supervision of rule violations and defaults behaviors in futures exchanges.

At the seminar, experts and professionals delivered keynote speeches and carried out thorough discussions on relevant legal issues including the legal status of future exchanges, punitive penalty mechanisms of future exchanges and rule-violations and defaults in futures exchanges. It is widely believed by the experts at the seminar that futures exchanges are in the frontline of market supervision, and the further improvement of approaches to address violations and defaults is conducive to bringing into full play the advantages of self-regulation, effectively punishing malpractices and maintaining the orderly development of the market. In practice, monetary penalties can directly increase the economic cost of violations and defaults, and have a strong punitive and deterrent effect. They act as an important solution to such behaviors in futures exchanges, and has become common practice in overseas markets. At present, domestic future exchanges have incorporated monetary penalties into their rulebook. Considering that monetary penalties directly involve the property rights of the parties concerned, on one hand, the relevant laws and regulations should be improved to further specify the self-regulatory nature of monetary penalties, and on the other hand, futures exchanges should further improve their approach in dealing with misconduct, so as to ensure proper legal compliance and procedures, and effectively strike against such behaviors in the market.

As the next step, CFFEX will earnestly perform its duty of frontline regulator under the leadership of China Securities Regulatory Commission, keep improving the mechanisms of handling violations and defaults, enhance the capability of dealing with such behaviors, strictly punish such behaviors in the market in accordance with the relevant laws and rules, establish a solid first line supervision of futures market, and vigorously maintain the healthy and stable development of the futures market.

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