Banking & Finance partner Vincent Sum and associate Sylvia Leung (both Hong Kong) are quoted in The Banker's article discussing the introduction of the Futures and Derivatives Law (FDL) in China at the start of August. The new law is expected to reduce costs for investors while opening up China's securities markets to higher levels of foreign investment.
“Going forward, it is not unreasonable to expect the size of [China’s] derivatives market to increase rapidly and significantly, at least in the medium to long term,” says Vincent.
"Essentially, having an internationally accepted practice will attract international participants to more actively trade with Chinese counterparties, and will equally encourage Chinese investment houses to become a real player in the international derivatives markets. This will promote the growth of the Chinese OTC derivatives market... On a macro level, this will fuel the further opening up of China’s capital markets," adds Sylvia.
However, there are sizeable operational challenges to be expected for both Chinese firms and entities engaging with China's derivatives market because of the new law.
“In the short term, market participants would need to revisit their derivatives documentation to determine what needs to be done in order to comply with the various margin rules that would affect existing trades,” says Vincent.