Recently, the China Securities Regulatory Commission (CSRC) granted the status of qualifying CCP (QCCP) to the China Financial Futures Exchange (CFFEX). This is a major step by CFFEX to enhance market infrastructure, strengthen regulatory and service capabilities, advance market opening, and facilitate the prevention and mitigation of major financial risks by aligning with international standards.
In the futures market, a CCP acts as the buyer to every seller and the seller to every buyer. The CCP nets transactions between multiple counterparties on a centralized basis and provides guarantees for futures transactions. In 2012, the CPSS and IOSCO published the Principles for Financial Market Infrastructures (PFMI), which establishes higher standards for CCPs in terms of general organization, credit and liquidity risk management, settlement, default management, general business and operational risk management, access, efficiency, transparency and so forth. A CCP recognized by the regulator in its jurisdiction as meeting the PFMI standards is granted QCCP status.
As an important financial market infrastructure, CFFEX provides secure, efficient and sound services for market participants to trade and clear financial derivatives, and performs CCP functions. In recent years, under the leadership of the CSRC, CFFEX has been working towards the QCCP status by benchmarking itself to the latest international standards such as the PFMI. With progress being made in improving corporate governance structure, developing a comprehensive risk management framework, and optimizing the tiered clearing mechanism and the default waterfall, a complete and up-to-standard CCP clearing system has been put in place at CFFEX.
Receiving the QCCP status will greatly enhance the global influence of CFFEX, which will in turn help attract more medium and long term funds, both domestic and international, into the market. Next, CFFEX will work on information disclosure as per PFMI standards and continue fulfilling its duties as QCCP, thus contributing to the development of the international financial center in Shanghai and the further opening-up of China’s financial market.