After a rulemaking process that lasted three years and involved three rounds of public consultation (in March 2023, November 2023 and January 2026), the China Securities Regulatory Commission (CSRC) promulgated the Derivative Trading Administrative Measures (Interim) (the Measures) on May 15, 2026. The Measures will take effect on November 16, 2026.
As the first departmental rule governing the derivatives industry under the supervision of the CSRC, the Measures establish a unified regulatory regime for derivative business conducted by securities and futures operation institutions, aiming to prevent risks in the derivatives market and promote its steady, sound and orderly development. Below are our observations on key provisions of the Measures.
I. Scope of Application
Pursuant to Article 2 of the Measures, the Measures only govern: (i) derivative trading and related activities organized by the derivative trading venues supervised by the CSRC; and (ii) derivative trading business and related activities conducted by the derivative operation institutions supervised by the CSRC.
The Measures shall not apply to the interbank market, or the OTC derivatives markets organized by banking or insurance financial institutions. That said, where banking or insurance financial institutions participate as traders in derivative trading, either on CSRC supervised derivative trading venues or with CSRC supervised derivative operation institutions, the Measures shall still apply.
II. Basic Principles and Prohibited Trading Activities
The Measures encourage the use of derivative markets for hedging and other risk management activities, support the development of derivative products that meet the risk management needs of medium- and long-term funds, and restrict excessive speculation in accordance with the applicable law. This principle has guided the entire rulemaking process of the Measures.
Consistent with the structure of the third consultation draft, the Measures no longer include a dedicated chapter on “prohibited trading activities”. Instead, Article 4 sets forth the basic principles applicable to all parties participating in derivative trading and related activities, namely, such parties shall observe the principles of fairness, voluntariness, consideration and good faith, and shall not commit, through derivative trading, any illegal acts or violations such as market manipulation, insider trading, trading on non-public information, non-compliant shareholding reduction or interest tunneling. No specific penalty provision is prescribed under this article. The Measures also remove the vague expression “no circumventing regulation”, which appeared in the first two consultation drafts, thereby avoiding an overly broad and ambiguous catch-all clause.
Compared with the third consultation draft, Article 16 of the Measures expands the scope of the prohibited underlying assets of derivative trading for some market participants. Specifically, for a listed company, shareholders holding 5% or more of its shares, its de facto controller, directors, supervisors, senior management and shareholders holding restricted shares, are prohibited from engaging in derivative trading with underlying assets consist of shares or any other equity-type securities issued by such listed companies.
This means that the prohibition extends beyond A shares, B shares and H shares issued by the listed companies, and also covers depositary receipts, exchangeable corporate bonds, convertible corporate bonds and other equity-type securities.
Article 16 also includes an exception for circumstances “otherwise provided by laws, administrative regulations or the CSRC”, reserving space for potential exemptions to be introduced in particular circumstances.
III. Aggregation of Futures and Derivatives Positions
Article 15 of the Measures provides that when implementing the position limit and large-position reporting for futures trading, futures exchanges may require that the derivatives contracts held directly or indirectly by a trader that link to the same or similar underlying assets shall be aggregated with the trader’s futures positions.
The Measures do not further define the specific criteria for “similar assets”, leaving room for futures exchanges to formulate detailed rules. It remains to be seen when the implementation rules will be issued by the futures exchanges.
IV. Aggregation of Shares and Derivatives Positions
In line with the third consultation paper, the Measures no longer retain the provisions in the first two consultation drafts requiring derivatives contracts referencing voting shares of a listed company to be aggregated with the trader’s directly and indirectly held shares, for the purpose of disclosure obligations or takeover-related activities.
We understand this removal reflects an intent not to restate content already addressed under the PRC Securities Law and other implementing rules. Even without an explicit provision in the Measures, exchanges may still require the aggregation of cash equity share positions and equity derivatives positions under the relevant rules for disclosure of equity interest.
V. Hedging Trading by Derivative Operation Institutions and Position Limit Exemptions
Article 34 of the Measures provides that where derivative operation institutions conduct hedging trading on securities or futures exchanges, they shall use dedicated hedging accounts and shall not conduct hedging trading directly based on clients’ instructions, and they shall comply with the rules of the securities or futures exchanges.
Securities or futures exchanges may provide necessary facilitation for the hedging trading conducted by derivative operation institutions, such as exemptions from position limits, and they shall place such hedging trading under close monitoring. Securities or futures exchanges may, based on the needs of monitoring, require derivative operation institutions to provide information about the counterparties, contracts and trading details of the derivative contracts relating to hedging transactions.
Compared with the third consultation draft, the final version deletes the requirement to submit information on the “trading purpose and trading strategy”, and only retains the requirements relating to “counterparties, contracts, and the trading details”. This suggests that the information which exchanges may require derivative operation institutions to report for monitoring purposes has become more objective and easier to standardize.
Article 34 reflects the CSRC’s regulatory approach towards hedging trading by derivative operation institutions: firstly, to prevent derivative operation institutions from acting merely as a “channel”; secondly, to recognize the legitimacy and necessity of derivative trading by allowing exchanges to grant position limit exemptions to derivative operation institutions as appropriate; and finally, while granting such facilitation, to emphasize trading monitoring and client see-through supervision.
Although the Measures do not directly apply to offshore derivative operation institutions, the underlying regulatory approach is consistent. Hedging transactions conducted by offshore derivative operation institutions should also be subject to the exchanges’ close monitoring and see-through supervision, highlighting the importance of the exchange-level frontline supervision.
VI. Net Capital and Personnel Requirements for Derivative Operation Business
Chapter IV of the Measures sets out internal control and risk management requirements. Building on the third consultation draft, the Measures add new administrative licensing conditions for securities companies and futures companies applying to conduct derivative operation business, including a requirement that their net capital remains no less than RMB 500 million on a sustained basis for the most recent six months. The Measures further provide that the CSRC may adjust the minimum net capital requirement in accordance with prudential regulatory principles, reserving the authority to impose higher requirements where necessary.
In addition to the net capital threshold, the Measures also require derivative operation institutions to have professional staff commensurate with their derivative trading business. The required relevant work experience for senior management in charge of derivative trading business has been reduced from five years (as set out in the third consultation draft) to three years.
Consistent with the third consultation draft, the definition of derivative operation institutions under Article 55 of the Measures does not include risk management subsidiaries of futures companies. This aligns with the regulatory trend reflected in the Administrative Measures for the Supervision and Administration of Futures Companies (Consultation Paper) issued by the CSRC in April this year, under which derivatives business is expected to be migrated from risk management subsidiaries to direct licensed operation by futures companies. This also imposes heightened compliance expectations on futures companies engaging in derivatives business going forward.
VII. Extraterritorial Application
Article 53 of the Measures follows the approach adopted in the third consultation draft. It no longer requires offshore derivative operation institutions that conduct derivative trading offshore, but hedging onshore, to directly comply with the provisions of the Measures. Instead, it provides that where a derivative operation institution conducts derivative trading offshore and its hedging transactions occur onshore, the CSRC will strengthen regulatory cooperation with the relevant overseas regulatory authorities in accordance with the law.
Similarly, we believe that the exchange-level frontline supervision will also play an increasingly important role in cross-border trading scenarios.
VIII. Transitional Period
The Measures provide for a six-month transitional period and will take effect on November 16, 2026. Pursuant to the CSRC’s Drafting Statement, from the effective date, all entities conducting derivative trading and related activities shall comply with the Measures. For businesses that do not comply with the Measures, no new business may be conducted, while the existing business may continue and will be wound down upon maturity.
