To boost risk management functions of financial futures, promote orderly market development, and strengthen management of hedging activities, China Financial Futures Exchange (hereinafter referred to as the “Exchange”) hereby give the notice on hedging management requirements in accordance with the Measures of China Financial Futures Exchange on Hedging and Arbitrage Trading and other related rules:
1. Hedging Management Requirements
Hedging activities of a client of the Exchange shall be in line with its Hedging Plan. Any change to the Hedging Plan shall be reported to the Exchange in a timely manner.
(1) Long Hedge
When a client takes long hedge positions, the notional value or the value of risks of the long positions shall not exceed the value or the value of risks of the underlying assets to be substituted for. Its investment plan and asset size shall also be specified in the Hedging Plan.
(2) Short Hedge
When a client takes short hedge positions, the total notional value of all equity index futures shorted shall not exceed 1.1 times the sum of the market value of all underlying indices’ constituent stocks, stock ETFs, and stock LOFs it holds.
When a client takes short hedge positions by shorting China government bond futures contracts, the notional value or the value of risks of the short positions shall not exceed the value or value of risks of the underlying assets to be hedged against.
(3) Management Measures
The Exchange will, in accordance with the Measures of China Financial Futures Exchange on Hedging and Arbitrage Trading, take such measures as ordering adjustment within a specified time limit, cautionary conversations, or suspension on the opening of new positions, against any client that fails to meet these management requirements.
If a client believes that its hedging activities follow the principles of risk management, it may submit relevant supporting materials to the Exchange through its carrying member prior to trading or within 5 trading days after the receipt of Notification Letter.
Supporting materials include but are not limited to:
i. hedging strategies;
ii. implementation of the Hedging Plans;
iii. size of the underlying assets and notional value of the futures contracts;
iv. the basic logic, calculation methods and relevant parameters of its risk management model;
v. hedging effectiveness.
Such materials shall be affixed with the signature or common seal of the client.
The Exchange will review the materials submitted by the client without suspending the aforementioned measures such as ordering adjustment within a specified time limit, cautionary conversations, or suspension on the opening of new positions. These measures will be lifted once the Exchange concur that the hedging risk management principles are being complied with upon verification.
2. Management Responsibilities of Futures Company Members
Clients participating in futures trading shall comply with the laws, regulations as well as business rules of the Exchange, and be subject to the self-regulatory management of the Exchange besides heeding its own hedging behaviors. Clients shall be subject to the compliance management of its carrying members with regard to their hedging activities.
Futures company members shall pay close attention to their clients’ trading activities, prevent potential violations of the management requirements, and guide clients to trade futures in a rational, compliant manner.
When a futures company member identifies any violation of the management requirements in clients’ hedging activities, it shall alert, dissuade and stop the client in a timely manner.
Where the Exchange takes any measure against a client for violating the management requirements, the carrying futures company member who applied for the corresponding quota shall timely notify the client, keep relevant evidence, and take effective actions to regulate the client’s trading activities.
Any futures company member that fails to fulfill the obligations of notifying its clients or assisting in the investigation of any suspected violation as required by the Exchange; or intentionally delays the process, conceals or omits any fact; or commits other violations will be ordered to make rectifications and, depending on the severity of the violation, be subject to such measures as cautionary conversation, written warning, circulated notice of criticism, public censure, and suspension or restriction of business activities.
3. Contact Details
Tel.: 021-50160545
Email: jctbtl@cffex.com.cn
This notice will be implemented as from March 25, 2019. In case of any inconsistency between previous rules and this notice, this notice will prevail.
China Financial Futures Exchange
March 22, 2019
