Regulatory issues were the first order of business at the first panel of FIA Asia Tuesday Morning (Monday night for those of us in Chicago) as Walt Lukken held a virtual fireside chat with Sharon Shi, chair of FIA Asia’s regional advisory board and managing director at G.H. Financials, and Bill Herder, FIA’s head of Asia-Pacific.
Lukken brought up the Draft Futures Law China proposed this year, for which he said the FIA “provided useful industry comments.” The law, intended to provide a comprehensive legal and regulatory framework for the futures markets in China, may become final in 2022, and Lukken asked what this would mean for the derivatives markets globally and in Asia.
“The law will significantly boost the confidence of investors,” Shi said. When some China contracts became accessible in 2018, some of her clients or prospective clients expressed concerns about the lack of a legal framework on the entire China futures market, and “quite a few” international firms were still in wait and see mode, she said.
“In my opinion, the release of the law will greatly mitigate those concerns,” Shi said.
Close out netting and finality of settlement are issues from not only a risk perspective but a cost perspective, and have caused some people to be hesitant to get into China’s futures markets, Lukken said. The issues are addressed in the second reading of the Draft Law, Herder said. The law is “not perfect,” he said, “but the good is not the enemy of the great.” He called the law a huge step forward for the international community.
The China Securities Regulatory Commission (CSRC) met last week, Lukken said, and “didn’t get into details of the Draft Futures Law, but the language of the CSRC was very much about opening up the markets and “continuing full steam ahead with foreign participation.”
Some regulatory clarity is needed around cryptocurrencies in Asia as well, the panel said. Herder said the regulatory agencies in Asian countries are all treated cryptocurrencies differently – some have damned it and some embraced it.
“Even though there are no real crypto exchanges here yet and no derivatives products listed, I think it will come. And they embrace the idea of a regulated market,” Herder said. “Participants are asking for well regulated markets because they don’t want crypto to be just a flash in the pan, highly volatile market.”
Lukken added that Asian countries are watching the U.S. closely “to see how we handle it.”
Another important issue is sustainability and climate change, Lukken said, and how markets might help with the transition to net zero by 2050. He asked how will Asian efforts help.
Sharon Shi said the major player we can’t ignore is China, which been trying to play a much bigger role in this area for the past few years.
“The government is supporting green projects,” she said, and “Xi Jinping has announced carbon neutrality rules.” Shi said this strategy is important for the One Belt, One Road Initiative. “There is still a ton of work to be done for the ESG market to boom, including a regulatory framework.” But this is high on the Chinese government’s radar, she said.
