Name: Provisions on Classified Supervision over Futures Companies (《期货公司分类监管规定》) (the “Provisions”)
Issuing authority: China Securities Regulatory Commission (the “CSRC”)
Effective date: 12 April 2011
Subject: Supervision of futures companies
The CSRC has amended its rules on classified supervision of futures companies with the publication of the Provisions, replacing the 2009 Provisions on Classified Supervision over Futures Companies (Trial) (the “Trial Provisions”).
The CSRC has partially revised its rating system for futures companies, introducing additional indicators to be taken into account in determining a company’s rating. Please refer to our alert dated 4 August 2009 for further information on the Trial Provisions.
Highlights
The system of classified supervision of futures companies remains broadly the same as that under the Trial Provisions, with ratings based on six areas of risk management and compliance - protection of client assets, capital adequacy, corporate governance, internal controls, safety of information systems, and publication of information, and further consideration given to other specified factors.
The CSRC has, however, introduced some changes to the additional factors to be taken into account when determining a futures company’s rating. For example,
“Records of nurturing and developing institutional investors” will be taken into account, with extra appraisal points being given to good performers. Regard will be had to a company’s (i) average daily positions of institutional investors; (ii) average daily interest (i.e. margin plus cash balances) of institutional investors; and (iii) average daily increase in interest of institutional investor clients.
“Market influence” has been replaced by a concept of “market competitiveness”. Specifically, indicators such as “cost control ability” and “rate of return on net assets” will be considered, in addition to existing indicators such as “average daily aggregate client interest” and “net profit”.
“Residual net capital” has been introduced as a new indicator. Companies whose residual net capital exceeds the minimum threshold of RMB 100 million can, subject to certain conditions, receive extra appraisal points. The intention is to encourage futures companies to replenish net capital, improve their capital strength and take prompt action to reduce risks.
The Provisions also clarify that in the case of a merger of futures companies with different rating classifications the surviving entity can, in certain cases, retain the higher of the pre-merger companies’ classifications.
If you would like to discuss anything regarding this Alert please contact Fang Jian (Shanghai), Nicola Mayo (Shanghai), Simon Poh (Shanghai), or Betty Yap (Hong Kong).
