A securities company or other financial institution that deals in derivatives in China reads the Futures and Derivatives Law to work out whether the business needs approval and how the law treats close-out netting under a master agreement.

What China set out in law

China adopted the Futures and Derivatives Law at the Standing Committee of the National People's Congress on April 20, 2022. It took effect on August 1, 20221. China explains that the purpose of the law is to address legal shortcomings, promote standardized industries and markets, and better protect investors' interests2.

The law made the basic mechanics of the derivatives market clear at the level of statute, including the single agreement and close-out netting2.

The legal basis and competent authorities are as follows.

Item Content
Legal basis The Futures and Derivatives Law, promulgated by Order of the President No. 1111
Authority for the futures market According to the law, the futures regulatory authority under the State Council supervises and administers the national futures market in a centralized and unified way3
Authority for the derivatives market According to the law, the State Council's futures regulatory authority, or a department the State Council authorizes, supervises and administers it according to the division of responsibilities3
Specific rules The State Council sets out specific methods for regulating and supervising derivatives trading and related activities, following the principles of the law4
Self-regulation Industry associations for futures and derivatives carry out self-regulation in accordance with the law5

The text of the law does not name the competent authority as Zhongguo Zhengjianhui. In a May 2026 article, Xinhua reports that the law brought derivatives trading within its scope and authorized Zhongguo Zhengjianhui to make specific provisions on related matters6.

The text of the law was checked as of October 12, 2026, in the versions published in the People's Daily and in the English translation on the National People's Congress English subsite (in force from August 1, 2022).

Covered transactions and what is required

The law defines derivatives trading as activity whose subject is swap contracts, forward contracts, and non-standardized option contracts, and combinations of them, other than futures trading. Futures trading is activity whose subject is futures contracts and standardized option contracts, and a futures contract is a standardized contract set uniformly by the trading venue7. The law sets the scope of derivatives trading by the type of contract traded, not by the term "OTC derivative."

On venues and parties, the law provides as follows.

Category What is required
Futures trading Conducted on a futures trading venue established by law, such as a futures exchange. Futures trading outside the venue is prohibited8
Derivatives trading May be conducted by negotiation or by another method the State Council sets8
Venues that organize derivatives trading A venue established by law may operate with the review and approval of a department authorized by the State Council or of the State Council's futures regulatory authority. Its trading rules also require approval9
Financial institutions Obtain approval or authorization under law for derivatives trading business. Fulfill the duty to manage trader suitability, and comply with the state's supervisory and regulatory provisions10

Trading outside China is also handled under this law, and liability is imposed, when it disrupts the domestic market order in China and harms the rights of domestic traders11.

Figure 1 below lines up only the conditions on the scope of trading and on approval for financial institutions, in order.

YesNoIs the contract a swap, aforward, or anon-standardizedoption?OutsidederivativestradingYesNoIs it derivativesbusiness done by afinancial institution?Outside theprovision forfinancialinstitutionsApproval orauthorization andsuitability managementapply
Figure 1The scope of derivatives trading under the law, and the approval question for financial institutions
Figure description

The figure checks the scope of derivatives transactions and the role of financial institution approval through two questions in order. A no to the first puts the contract outside the scope of derivatives transactions under these conditions, and futures trading is governed by separate provisions. A no to the second means the provision for financial institutions does not apply, so other articles are checked separately. If both are yes, approval or authorization under the law and the management of trader suitability are involved710. The figure does not show approval of venues that organize trading, offshore transactions, or the scope of "financial institution."

Consider a hypothetical example in which two transactions are tested against the questions in Figure 1. In the first, a financial institution concludes, by negotiation, a transaction whose subject is a forward contract. A forward contract falls within derivatives trading, and the financial institution does it as business, so approval or authorization and suitability management apply710. In the second, a standardized contract set uniformly by the trading venue is traded on that venue. This contract is a futures contract and the trade is futures trading, so it drops out at the first question. Futures trading has separate provisions that require it to be conducted on a trading venue established by law8.

Treatment of violations

The penalties below are those in the 2022 law, not in the departmental rule covered in a later section. Organizing derivatives trading without approval, and a financial institution conducting derivatives trading without approval or authorization, are punished by confiscation of illegal gains and a fine. The fine is from 1 to 10 times the illegal gains. If there are no illegal gains, or they are under 1 million yuan, the fine is from 1 million yuan to 10 million yuan12.

Provisions on contracts and netting

For derivatives trading under a master agreement, the law provides the following.

  • The master agreement, the supplementary agreements under it, and the parties' arrangements for individual transactions together form one complete, single agreement and are legally binding13.
  • Templates for master agreements and similar contracts are filed in accordance with the rules of a department authorized by the State Council or of the State Council's futures regulatory authority14.
  • Performance can be secured by pledges and other methods15.
  • When an agreed event occurs in a trade under a master agreement, the trades can be terminated as agreed, and the gains and losses of all trades under the agreement can be netted and settled. This netting is not suspended, invalidated, or revoked even if one party to the trade enters bankruptcy proceedings under law16.

These are the provisions on close-out netting.

Central clearing has a provision to the same effect. For a derivatives trade that is cleared centrally by a clearing house approved by a department authorized by the State Council or by the State Council's futures regulatory authority, acting as a central counterparty, netting at termination is allowed under law. Clearing assets are used first for clearing and delivery. They cannot be seized, frozen, or enforced against, and nobody may use them before clearing and delivery are complete. Central clearing is not suspended, invalidated, or revoked even if a participant enters bankruptcy proceedings17.

Central collection of trade information

The law provides that a department authorized by the State Council and the State Council's futures regulatory authority set up an institution for reporting derivatives trades (in English translation, a repository for derivatives trading). The institution collects, stores, analyzes, and manages information such as the subject, size, and counterparties of trades, and publishes relevant information to the market promptly in accordance with the rules. These two bodies set the specific methods18.

Two Chinese institutions, CFETS and NAFMII, were previously entities similar to trade repositories (TR-like entities). They have since been approved as trade repositories19.

Entry into force and later rules

The main dates are as follows.

Date Event
December 2021 The Security Association of China (SAC) issued the securities companies' OTC swap regulation20
April 20, 2022 The Futures and Derivatives Law was adopted and promulgated by Order of the President No. 1111
August 1, 2022 The Futures and Derivatives Law took effect1
May 15, 2026 Zhongguo Zhengjianhui published the Measures for the Supervision and Administration of Derivatives Trading (Trial)21
November 16, 2026 Announced as the effective date of the measures above. As of October 2026, they have not yet taken effect21

The December 2021 regulation sets out dealer requirements, investor eligibility, eligible underlying assets and contracts, margin, and trade reporting. The margin rules are in force for all securities companies that conduct OTC swaps20.

On the measures published in May 2026, Xinhua reports the following.

  • The measures are the first departmental rule for the derivatives industry supervised by Zhongguo Zhengjianhui.
  • The measures cover derivatives trading and settlement, traders, derivatives business operators, market infrastructure, supervision and administration, and legal liability.
  • To apply for derivatives trading business, securities companies and futures companies must meet administrative licensing conditions, including net capital that has stayed at 500 million yuan or more over the most recent 6 months. Zhongguo Zhengjianhui may adjust the minimum net capital in line with the principle of prudential supervision.
  • From the effective date, the parties concerned may not newly add business that does not conform to the measures, and existing business ends at maturity. Zhongguo Zhengjianhui will announce separately the specific arrangements for implementing licensing21.

Comparison with other jurisdictions

In the November 2022 report of the Financial Stability Board (FSB), China is "implemented" for trade reporting, central clearing, and interim capital requirements, and at "stage 3" for final capital requirements, margin requirements, and platform trading in the table. The table is in Overview of Derivatives Regulation in Asia-Pacific.

For comparison with Japan's system, Japan's Close-Out Netting Act covers close-out netting. China places the effect of master agreements and close-out netting within a single law that deals with derivatives.

The content of the reporting obligation for derivatives trades, which trades are subject to central clearing, the text of the measures, and the penalties for other violations are not covered on this page.

Notes

  1. The opening of "中华人民共和国期货和衍生品法" (in Chinese; published in the People's Daily on April 21, 2022). Passed by the Standing Committee of the National People's Congress on April 20, 2022, promulgated by Order of the President No. 111, and in force from August 1, 2022. The English name follows the National People's Congress English subsite. ↩ ↩2 ↩3 ↩4

  2. Financial Stability Board, "OTC Derivatives Market Reforms: Implementation progress in 2022" (November 7, 2022; the "FSB report" below), page 6, the China entry. ↩ ↩2

  3. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 8. The second half of paragraph 1 provides that where the State Council sets separate rules on the supervision of interest rate and foreign exchange futures, those rules apply. ↩ ↩2

  4. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 38. ↩

  5. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 9. ↩

  6. Xinhuanet, "中国证监会发布《衍生品交易监督管理办法（试行）》" (in Chinese; Xinhua News Agency, May 15, 2026). The part reporting that the law brought derivatives trading within the scope of regulation by law and authorized 中国证监会 to make specific provisions on related matters. ↩

  7. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 3. ↩ ↩2 ↩3

  8. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 11. Paragraph 1 covers futures trading venues and the prohibition outside them; paragraph 3 covers the methods of derivatives trading. ↩ ↩2 ↩3

  9. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 30. ↩

  10. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 31. ↩ ↩2 ↩3

  11. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 2, paragraph 2. ↩

  12. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 136, paragraphs 1 and 2. Paragraph 2 provides that violations of Articles 30 and 31 are punished under paragraph 1. ↩

  13. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 32. ↩

  14. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 33. ↩

  15. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 34. ↩

  16. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 35. ↩

  17. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 37. ↩

  18. "中华人民共和国期货和衍生品法" (Futures and Derivatives Law of the People's Republic of China; in Chinese), Article 36. "An institution for reporting derivatives trades" is this article's translation; the English translation of the law reads "a repository for derivatives trading." ↩

  19. FSB report, page 3 and footnotes 3 and 5, "Trade reporting." CFETS is the China Foreign Exchange Trade System, and NAFMII is the National Association of Financial Market Institutional Investors. ↩

  20. FSB report, page 5 and footnote 11, "Margin requirements for non-centrally cleared derivatives." The regulation is titled "Over-the-Counter Swap Regulation of Security Companies," and the association's name follows the report's spelling. ↩ ↩2

  21. Xinhuanet, "中国证监会发布《衍生品交易监督管理办法（试行）》" (in Chinese; Xinhua News Agency, May 15, 2026; the body of the article listed in sources). The English title of the measures is this article's translation. The effective date, the list of contents, the net capital condition, and the treatment of existing business after the effective date. ↩ ↩2 ↩3