The Paper.cn: SHFE’s Articles of Association Revised to Clearly Affirm the Key Leading Role of Party Committee and Stress on the Frontline Regulatory Functions of the Exchange

Updated on: November 14, 2017

Reported by Liu Xinyu

Shanghai Futures Exchange (“SHFE”) adopted the newly-revised Articles of Association and Trading Rules on November 13,2017.

The Articles of Association of SHFE is composed of 85 articles in 11 chapters, covering multiple subjects such as the rights and obligations of the members of the Exchange, the function and power of the Members Assembly, Board of Directors and Board of Supervisors as well as the financial management of the exchange.

And the Trading Rules of SHFE is made up of 107 articles in 13 chapters, providing detailed stipulations on the products and contracts, membership management, trading, settlement, risk control, information disclosure and management.

In particular, the Articles of Association grooms the governance structure of the Exchange once again.

First of all, the Articles of Association clearly affirm the key leading role of the Party Committer towards the Exchange. Article 6 of the General Provisions points out that “in accordance with the Constitution of the Communist Party of China, the Exchange sets up the organizations of the Communist Party of China, carries out the Party activities and provides necessities for the operation of the Party organizations to ensure the functioning of the political key leading role of the Party Committee, the supervision role of the Party Disciplinary Inspection Committee and the fighting bastion role of the Party’s organizations at grass-root level.”

In addition, the stipulations concerning the duties of the Board of Supervisors are supplemented, and the appointment mechanism of the Member Directors also improved by the Exchange in these Articles of Association.

Second improvement is to broaden the business coverage of the Exchange. The newly-revised Articles of Association make it clear that futures trading includes both the futures contract trading and option contracts trading.

Moreover, the frontline supervision functions are also reflected in the newly-revised Articles of Association, which has been repeatedly stressed on by the regulatory management in recent years.

According to Chapter 10 of the Articles of Association, the Exchange may conduct on-site or non-on-site inspection on the futures market participants, keep CSRC posted as far as possible about any clue leading to alleged violations or irregularities of market participants and actively assist CSRC in investigating and dealing with the case lawfully so as to make concerted efforts in the regulation.

When attending the 6^th Member Assembly of SHFE on September 6, Fang Xinghai, Vice Chairman of CSRC, also stressed on the frontline supervision of the futures exchanges. He then said that futures exchanges shall serve as the frontline market supervisor, further strengthen their front-line supervision responsibilities, focus on preemptive measures, make timely assessment of market risks, and prepare responsive risk control plans, in order to effectively combat violations. In addition, we shall promote the cross-market sharing of regulatory information and further enhance regulatory cooperation.

The Trading Rules revised at the same time are more specific, and most of their revisions are based on the existing futures trading system.

In particular, these Trading rules provide the rule basis for the operations not included in the previous rules but actually being running in the real market, such as the additions of arbitrage management system, categories of negotiable securities used as margin collateral and forced position liquidation. Additionally, certain stipulations that conflict with the existing operations are also revised. For instance, adjustments are made to the scope of listed products, the determination of current day settlement price of futures contract, position limitation and etc.

According to SHFE, the major considerations on the revision are that the existing Articles of Association demonstrate certain time lag and unsuitability because the situation and tasks, internal and external conditions, institutional environment and practical needs before the Exchange are undergoing profound changes when it organizes, regulates and develops the market, along with the increasingly deepening reform and development of the futures market, continuous progress in the market standardization and regulation as well as the constantly improving internal governance structure.

The newly-revised Articles of Association and Trading Rules shall come into force as of November 13,2017.