Mar 02, 2019 03:12 AM

China Tightens Rules for Owners of Futures Firms

Iron ore futures trading floor in the northeastern port city of Dalian. Photo: VCG
Iron ore futures trading floor in the northeastern port city of Dalian. Photo: VCG

China’s securities regulator is revising administrative requirements for companies that buy and sell futures contracts, raising capital and profitability requirements for the companies’ major shareholders.

The China Securities Regulatory Commission (CSRC) Friday began soliciting public comment on the revised rules after participants in the futures market long complained that regulations on futures companies’ shareholders were too weak and the threshold for new investors was too low.

Futures contracts are agreements to deliver a quantity of goods, usually agricultural or industrial commodities, at a set date and price in the future. Futures on stock indexes and treasury bonds are also traded. The purpose of futures exchanges is to transfer risk on price movements generally from producers to market players betting on making big profits.

Under the new draft rules, holders of 5% or more of a futures company should have net assets of at least 100 million yuan ($14.9 million), up from the 30 million yuan set in 2007 under the current law. 

The new rules also require that shareholders should have maintained profitability in the past three consecutive fiscal years, compared with one of the two most recent years as currently required. The assets and profitability requirements also apply to indirect shareholders of 5% or more.

Shareholders will not be allowed to invest entrusted funds and debt funds in futures companies. The current law doesn’t have such rules but requires only that a shareholder should have no large outstanding debt. These requirements also apply to indirect shareholders with stakes of 5% or more, according to the revised rules.

The draft for comment also adds requirements for controlling shareholders and the largest shareholder of a futures company. Such shareholders should have net capital of at least 500 million yuan and net assets of at least 1 billion yuan. They are required to have strong advantages in technology, management and marketing, and capabilities on capital replenishment and risk management.

Controlling shareholders of futures companies are required to assess their status and report to regulators on a regular basis. The revised rules also clarify the obligations of transferring and receiving shareholders in equity transfer transactions.

When a futures company sets up or acquires a foreign subsidiary, the futures regulatory body of the country or region where the subsidiary is located should have signed a memorandum of cooperation with the CSRC, according to the draft.

Before setting up units abroad, a futures company should have not received any administrative penalty in the last three years and have not been subject to regulatory measures due to poor governance or lack of internal controls in the past year. The parent company should have a compliance and risk-control system in place to prevent violations by subsidiaries.

Contact editor Yang Ge (

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