Review on the Continuous Trading Program (V): Better Performance of Joint Regulatory System

Updated on Jul 08,2014

July 8, 2014

By Zhang Fan

Special Report V to Mark the 1st Anniversary of the Continuous Trading Program of the SHFE

The reform and innovation of the futures market involve a variety of subjects and demand the cooperation of relevant institutions in the prevention and control of risks. The launch of the Continuous Trading Program, or the Night Trading Session, -presents a new challenge to the established “five in one” regulatory system in China. It demands that the Exchange revise the trading rules, that the Futures Margin Monitoring Center (“Monitoring Center”) inspect and monitor the market, that the Futures Industry Association provide standard reference texts of contracts, and that the China Securities Regulatory Commission (CSRC) and its agencies regulate and educate investors.

As the Continuous Trading Program changes the division of time points of a trading day made by the margin monitoring center before, the Monitoring Center and the Shanghai Futures Exchange (SHFE) talked at length and in depth about the relevant technical and business details of the Continuous Trading Program, formulated a new margin monitoring plan for the Continuous Trading Program, and completed the transformation of the new monitoring system before officially launching it in June 2013. Meanwhile, the Monitoring Center issued guideline documents to set down the new rules for data report and settlement after the launch of the Continuous Trading Program. It also communicated several times with the SHFE, futures companies, and margin depository banks about the testing plans, emergency drilling and launching arrangement, before it finally ensured that the data reporting mechanisms of all parties and the settlement businesses of the futures companies satisfy the new requirements of the Continuous Trading Program, so as to guarantee the success of margin monitoring in the Continuous Trading Program.

According to the introduction of relevant officials of the Monitoring Center, in order to inspect and monitor the market in the Continuous Trading Program, the technical and business departments of the Center analyzed together the features of the Continuous Trading Program, drew up the requirements in transforming the systems, devised a sophisticated working plan, transformed and tested the system for two months, and solved a number of problems, including the information inconsistency about the trading sessions of the products, and the fact that the market quotation, commission, and transaction of the products in the night market could actually span two trading days. Besides, in the first days of the Continuous Trading Program, the Monitoring Center put business and technical staff on the night shift, monitoring the the Continuous Trading Program in real time.

As the front-line regulatory organizations, the local regulatory institutions also took pains in the preparations. Before the launch of the Continuous Trading Program, Shanghai Securities Regulatory Bureau intensified the studies of business rules, organized the regulatory staff to discuss special topics, and carried out research on the influence of the Continuous Trading Program on the management of brokerage businesses of the futures companies and the regulatory methods of the agencies. Besides, the Bureau also designed questionnaires to follow the preparation of the futures companies within the jurisdiction and convened conferences of chief risk officials on special themes to figure out potential problems and risks and work out effective handling measures. Meanwhile, to solve the salient problems discovered in the preparation of the futures companies, including the deposit and withdrawal of clients’ capital, the settlement, the risk of forced liquidation, the operation and maintenance of the information system and the emergency management, Shanghai Securities Regulatory Bureau composed a special report to offer suggestions to the CSRC. What’s more, it also set up an emergency contact system, toughened on-spot inspection, and intensified the education and protection of investors.

“For a year, because of the sufficient preparation before the launch and the effective regulation after the launch, the futures companies in the jurisdiction of Shanghai have not run into any information security accident in the Continuous Trading Program, and Shanghai Securities Regulatory Bureau has not received any petition letter or complaint against the futures institutions about their services in the Continuous Trading Program,” said a relevant official of the futures department of the Bureau.

Zhejiang Securities Regulatory Bureau also attached much importance to the Continuous Trading Program, and by education and advertising, by organizing research on special topics and by improving the working mechanism, it managed to have full control over the risk points.

The launch of the Continuous Trading Program demanded the further improvement of some existing systems and rules of the futures industry. For example, in the aspects of trading hours, capital transfer, risk control and emergency management, night trading is very much different from daytime trading, but the old futures brokerage contracts failed to cover the abovementioned contents. As a result, quite a few futures companies hoped for standardized contract texts specially for the Continuous Trading Program. To settle this, the China Futures Industry Association communicated thoroughly with the SHFE and learned the needs of the futures companies. In less than a month, it drafted the Supplementary Agreement specially for the the Continuous Trading Program of gold and silver futures, collected suggestions about the draft, took it through the discussion of the board of governors, put it on record in the CSRC and released it to the public, thus laying down with meticulous rules the foundation stone for the Continuous Trading Program.

In the one year since the launch of the Continuous Trading Program, the “five-in-one” joint regulatory system of China has functioned on the principle of “united leadership, shared resources, separate duties, divided responsibilities, intimate cooperation and concerted regulation”. It has made sufficient preparations in information sharing, communications support and concerted regulation, guaranteeing the steady operation of the Continuous Trading Program.

Source: Futures Daily