Derivatives: PRC and Hong Kong

This Client Alert looks at some of the recent changes, issues and challenges facing those interested in the derivatives market in the PRC and Hong Kong. We look at the recent draft regulations issued by the CBRC, the CIRC's decision to allow all insurers to enter into interest rate swaps, possible changes that are ahead for the NAFMII Master Agreement, signs of development in the CDS market in the PRC and recent changes ISDA have announced to its credit derivative novation process. CBRC releases revised draft regulations on derivatives Regulators around the world are taking a closer look at the use and regulation of derivative products. We are seeing this with the Dodd-Frank Act in the US and proposals for new measures in the EU, the UK and Australia - and China is no exception. In July 2009, the national banking supervisory body, the China Banking Regulatory Commission (CBRC) promulgated the Notice on Further Strengthening Risk Management for Derivative Transactions between Banking Financial Institutions and Corporate Clients (CBRC Circular No. 74) which imposed restrictions on the ability of onshore (domestic) banks to engage in derivative transactions with their corporate clients and a significant ongoing administrative burden on both those banks and their clients, including an enhancement of client suitability verifications and risk disclosure measures.