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BrooklynJournalofCorporate,Financial&CommercialLawVolume3|Issue2Article42009LegalAspectsoftheCommodityandFinancialFuturesMarketinChinaSanzhuZhuFollowthisandadditionalworksat:https://brooklynworks.
brooklaw.
edu/bjcfclThisArticleisbroughttoyouforfreeandopenaccessbytheLawJournalsatBrooklynWorks.
IthasbeenacceptedforinclusioninBrooklynJournalofCorporate,Financial&CommercialLawbyanauthorizededitorofBrooklynWorks.
RecommendedCitationSanzhuZhu,LegalAspectsoftheCommodityandFinancialFuturesMarketinChina,3Brook.
J.
Corp.
Fin.
&Com.
L.
(2009).
Availableat:https://brooklynworks.
brooklaw.
edu/bjcfcl/vol3/iss2/4LEGALASPECTSOFTHECOMMODITYANDFINANCIALFUTURESMARKETINCHINASanzhuZhu*I.
INTRODUCTIONTheestablishmentofChina'sfirstcommodityfuturesexchangeinZhengzhou,HenaninOctober1990markedtheemergenceofafuturesmarketinChina.
TheZhengzhouCommodityExchangewascreatedinthewakeofthecountry'seconomicreformanddevelopment,anditbecamethefirstexperimentalcommodityfuturesmarketapprovedbythecentralgovernment.
TheZhengzhouCommodityExchangeprovidedaplatformandfacilitatedaneedforcommodityfuturestradingarisingalongsideChina'seconomicreform,whichhadbegunin1978,andwhichwasmovingtowardsamarketeconomybytheearly1990s.
1Sixteenyearslater,theChinaFinancialFuturesExchange(CFFEX)wasestablishedinShanghai.
2ThiswasfollowedbytheopeningofgoldfuturestradingontheShanghaiFuturesExchangeonJanuary9,2008.
3Chinagraduallydevelopedalegalandregulatoryframeworkforitscommodityandfinancialfuturesmarketsbeginningintheearly1990s,*SeniorLecturerinChinesecommerciallaw,SchoolofLaw,SOAS,UniversityofLondon.
TheauthorwouldliketothankLizSaura,ExecutiveArticlesEditor,AndrewKirkpatrick,Editor-in-Chief,andothereditingstaffoftheBrooklynJournalofCorporate,Financial&CommercialLaw.
ThanksarealsoduetothestaffofLuiCheWooLawLibraryoftheUniversityofHongKong.
Specialappreciationisowedtomywife,Dr.
HongMei,forherencouragementandsupport.
1.
PriortotheintroductionoffuturestradingonMay28,1993,theZhengzhouCommodityExchangeoperatedfortwoyearsdealingwithtradingofcashforwardcontracts.
CurrentlythefuturesproductstradedontheZhengzhouCommodityExchangeincludewheat,cotton,whitesugar,pureterephthalicacid(PTA),rapeseedoilandgreenbeanfuturescontracts.
SeeZhengzhouCommodityExchangeHomepage,http://www.
czce.
com.
cn(follow"AbouttheExchange"("GuanyuJiaoYiSuo")hyperlink)(lastvisitedFeb.
23,2009).
2.
ApprovedbytheStateCouncilandtheChinaSecuritiesRegulatoryCommission(CSRC),ChinaFinancialFuturesExchange(CFFEX)wasestablishedjointlybythefivecurrentsecuritiesandfuturesexchanges,namely,theShanghaiFuturesExchange,ZhengzhouCommodityExchange,DalianCommodityExchange,ShanghaiStockExchangeandShenzhenStockExchange.
TheCSI300indexfuturescontractisaproductthatCFFEXpreparestolaunch.
UnderlyingtheCSI300indexfuturescontractistheCSI300index,(hushen300zhishu),whichcomprises300A-shareslistedonShanghaiStockExchangeandShenzhenStockExchangeandrepresents60%marketcapitalizationofShanghaiandShenzhenmarketsasawhole.
FormoreinformationabouttheCSI300index,seeChinaSecuritiesIndexCo.
,LtdHomePage,www.
csindex.
com.
cn(follow"ListofIndexes"("ZhiShuXiLie")hyperlink)(lastvisitedFeb.
20,2009).
ApartfromtheCSI300indexfuturescontract,CFFEXplanstointroduceinthefutureotherindexfutures,indexoptions,governmentbondsfuturesandcurrencyfutures.
SeeChinaFinancialFuturesExchangeHomePage,http://www.
cffex.
com.
cn(follow"AbouttheExchange"("GuanyuJiaoYiSuo")hyperlink)(lastvisitedFeb.
20,2009).
3.
Thelaunchofgoldfuturestradingwasmetbyenthusiasticinvestors.
SeeJavierBlas&ChrisFlood,GoldFuturesFliesHighinShanghaiMarket,FIN.
TIMES,Jan.
9,2008,availableathttp://us.
ft.
com/ftgateway/superpage.
ftnews_id=fto010920081600301332&page=2.
378BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3whenthefirstgovernmentfuturesregulatorydocumentswereissued,4andcontinuingintoearly2007,whenthe2007RegulationsontheAdministrationofFuturesTrading(2007Regulations)replacedthe1999ProvisionalRegulationsontheAdministrationofFuturesTrading(1999ProvisionalRegulations).
5Atapracticallevel,detailedtradingruleswereenactedforeachofthefuturesexchanges,6whilerulesandproceduralguidelinesweredevelopedinjudicialandnon-judicialresolutionofdisputesarisingfromfuturestrading.
74.
See,e.
g.
,Guowuyuanguanyujianjuezhizhiqihuoshichangmangmufazhandetongzhi[NoticeoftheSt.
CouncilonFirmlyStoppingBlindDev.
oftheFuturesMkt.
](promulgatedbytheSt.
Council,Nov.
14,1993,effectiveNov.
14,1993),availableathttp://law.
baidu.
com/pages/chinalawinfo/1/2/ce4e878e724d70b042645b67d39ef581_0.
html(lastvisitedMar.
30,2009)(P.
R.
C.
)[hereinafterTheNoticeoftheSt.
CouncilonFirmlyStoppingBlindDev.
oftheFuturesMkt.
];seealsoQihuojingjigongsidengjiguanlizhanxingbanfa[ProvisionalMeasuresontheAdmin.
ofRegistrationofFuturesBrokerFirms](promulgatedbytheSt.
Admin.
forIndus.
&Commerce,Apr.
28,1993,effectiveApr.
28,1993)(repealed1998&2004),availableathttp://law.
baidu.
com/pages/chinalawinfo/0/62/81cf6b445492920d18772174cf153c36_0.
html(lastvisitedMar.
30,2009)(P.
R.
C.
)[hereinafterTheProvisionalMeasuresontheAdmin.
ofRegistrationofFuturesBrokerFirms];GuowuyuanbangongtingzhuanfaGuowuyuanzhengquanweiyuanhuiguanyujianjuezhizhiqihuoshichangmangmufazhanruoganyijianqingshidetongzhi[NoticeoftheGen.
OfficeoftheSt.
CouncilRelayingtheRequestoftheSt.
CouncilSec.
Comm.
SeekingInstructionsonSeveralOpinionsonFirmlyStoppingBlindDev.
oftheFuturesMkt.
](promulgatedbytheGen.
OfficeoftheSt.
Council,May16,1994,effectiveMay16,1994),availableathttp://www.
haaic.
gov.
cn/info.
aspclasskey=1002&id=997(lastvisitedApr.
24,2009)(P.
R.
C.
)[hereinafterTheNoticeoftheGen.
OfficeoftheSt.
CouncilSeekingInstructionsonSeveralOpinionsonFirmlyStoppingBlindDev.
oftheFuturesMkt.
].
5.
SeeQihuojiaoyiguanlitiaoli[RegulationsontheAdmin.
ofFuturesTrading](promulgatedbytheSt.
Council,Mar.
6,2007,effectiveApr.
15,2007,St.
CouncilOrderNo.
489),availableathttp://www.
gov.
cn/zwgk/2007-03/16/content_553002.
htm(lastvisitedMar.
30,2009)(P.
R.
C)[hereinafterThe2007RegulationsontheAdmin.
ofFuturesTrading].
6.
TheZhengzhouCommodityExchange,ShanghaiFuturesExchange,DalianCommodityExchangeandChinaFinancialFuturesExchangehavealllistedtheirtradingrulesontheirwebsites,coveringeveryaspectoffuturestradingintheirrespectivemarket.
SeeZhengzhouCommodityExchangeHomePage,www.
czce.
com.
cn(follow"ExchangeRegulations"("YeWuGuiZe")hyperlink)(lastvisitedMar.
4,2009);ShanghaiFuturesExchangeHomePage,http://www.
shfe.
com.
cn(follow"Rules&Regulations"("FaLüFaGui")hyperlink)(lastvisitedMar.
4,2009);DalianCommodityExchangeHomePage,http://www.
dce.
com.
cn(follow"FuturesRegulations"("QiHuoFaGui")hyperlink)(lastvisitedMar.
4,2009);ChinaFinancialFuturesExchangeHomePage,http://www.
cffex.
com.
cn(follow"Rules&Regulations"("FaLüFaGui")hyperlink)(lastvisitedMar.
4,2009).
ThoserulesandguidelinesplayedanintegralpartinshapingthedevelopmentoffuturestradinginChina.
7.
See,e.
g.
,Zuigaorenminfayuanyinfaguanyushenliqihuojiufenanjianzuotanhuijiyaodetongzhi[TheNoticeoftheSupremePeople'sCourtonCirculating'MinutesoftheSymposiumoftheSupremePeople'sCourtonAdjudicationofCasesofFuturesDisputes'](promulgatedbytheSupremePeople'sCourt,Oct.
27,1995),translatedinISINOLAW(lastvisitedApr.
24,2009)(P.
R.
C.
)[hereinafterThe1995SPCFuturesJudicialGuidelines];Zuigaorenminfayuanguanyushenliqihuojiufenanjianruoganwentideguiding[ProvisionsoftheSupremePeople'sCourtonSeveralIssuesConcerningAdjudicationofCasesofFuturesDisputes](adoptedbytheAdjudicationComm.
oftheSupremePeople'sCourtMay16,2003,effectiveJuly1,2003),availableathttp://www.
court.
gov.
cn/lawdata/explain/civil/200306270003.
htm(lastvisitedMar.
20,2009)(P.
R.
C.
)[hereinafterThe2003SPCFuturesJudicialProvisions];Shanghaiqihuojiaoyijiufenchuliyantaohuijiyao[TheSummaryofShanghaiSeminarsonHandling2009]TheFuturesMarketinChina379Toalargeextent,thepatternsof,andrelationshipsbetween,thedevelopmentofthelegal,regulatoryandjudicialframeworkandproceduresinChina'scommodityandfinancialfuturesmarketarenodifferentfromthepatternsandrelationshipsfoundinotherareasofChinesecommerciallawandregulations.
Thatis,legislationbeginsastentative,ad-hocorlocalregulations,whichpavethewaytoformalnationalregulation,8whichisthenfurthersupplementedbydetailedimplementingrulesfromcentralgovernmentregulators.
9Ultimately,nationallawisenactedbytheNationalPeople'sCongressoritsStandingCommittee,China'slaw-makingbody.
10Onthejudicialside,theSupremePeople'sCourtformulatesjurisdiction-specificproceduralprinciplesandguidelinesfordisputeresolutioninaccordancewiththe1991CivilProcedureLaw(asamendedin2007),11FuturesTradingDisputes]inQihuojiaoyijiufenanlipingxi[COMMENTARYANDANALYSISONFUTURESTRADINGDISPUTECASES](ZhongFutangetal.
eds.
,Shanghai:XuelinPublishingHouse,1998)[hereinafterTheSummaryofShanghaiSeminarsonHandlingFuturesTradingDisputes].
8.
Forexample,intheareaofcompanylaw,beforetheenactmentoftheCompanyLawofthePeople'sRepublicofChinabytheStandingCommitteeoftheNationalPeople'sCongressinDecember1993(asamendedin1999,2004&2005),therewerearangeofregulations,regulatorydocumentsandimplementingrulesatbothlocalandnationallevel.
SeeFujianFujiantouziqiyegongsizhaiquanfaxingbanfa[MeasuresofFujianProvinceforIssuanceofBondsbyFujianInvestmentEnters.
Co.
](promulgatedbytheFujianGov'tJan.
17,1980,effectiveJan.
17,1980)(repealedJuly28,2000),availableathttp://www.
bht.
yn.
gov.
cn/Article/1980/19800117000000.
html(P.
R.
C.
);Guowuyuanguanyujinyibuqinglihezhengdungongsidetongzhi[NoticeoftheStateCouncilonFurtherClear-up&ConsolidationofCos.
](promulgatedbytheSt.
CouncilAug.
20,1985,effectiveAug.
20,1985),availableathttp://www.
yfzs.
gov.
cn/gb/info/LawData/gjf2001q/gwyfg/2003-06/24/1558598998.
html(P.
R.
C.
);Guangdongshengjingjitequshewaigongsitiaoli[RegulationsofGuangdongProvinceonForeignRelatedCos.
inSpecialEcon.
Zones](adoptedbytheStandingComm.
ofGuangdongProvincialSixthPeople'sCong.
Sept.
28,1986,promulgatedOct.
20,1986,effectiveJan.
1,1987),availableathttp://www.
law-lib.
com/lawhtm/1986/47762.
htm(P.
R.
C.
);Xiamenshizujiangufenyouxiangongsishidianbanfa[TrialMeasuresofXiamenCityforEstablishmentofCo.
LimitedbyShares](promulgatedbytheXiamenGov'tJuly24,1991,effectiveJuly24,1991),availableathttp://bht.
yn.
gov.
cn/Article/1991/19910724000000.
html(P.
R.
C.
);Shanghaishigufenyouxiangongsizanxingguiding[TentativeRegulationsofShanghaiCityonCompanyLimitedbyShares](promulgatedbytheShanghaiCityGov'tMay18,1992,effectiveJune1,1992),availableathttp://www.
pt.
fjaic.
gov.
cn/law_show.
asplaw_type=DSHS1024(P.
R.
C.
);Youxianzerengongsiguifanyijian[OpinionsonStandardizationofLtd.
LiabilityCo.
](promulgatedbytheSt.
CommissionforEcon.
SystemReformMay15,1992,effectiveMay15,1992),translatedinISINOLAW(lastvisitedApr.
24,2009)(P.
R.
C.
);Gufenyouxiangongsiguifanyijian[OpinionsonStandardizationofCo.
LimitedbyShares](promulgatedbytheSt.
CommissionforEcon.
SystemReformMay15,1992,effectiveMay15,1992),translatedinISINOLAW(lastvisitedApr.
24,2009)(P.
R.
C.
).
9.
Seesourcescitedsupranote8.
10.
Id.
11.
SeeZhonghuarenmingongheguominshisusongfa[CivilProcedureLaw](promulgatedbythe7thNationalPeople'sCongressonApr.
9,1991,effectiveApr.
9,1991,revisedOct.
28,2007,effectiveApr.
1,2008),availableathttp://www.
court.
gov.
cn/lawdata/law/civilcation/200807310024.
htm(P.
R.
C.
)[hereinafter1991CivilProcedureLaw].
380BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3primaryandgenerallegislationssuchasthe1986GeneralPrinciplesofCivilLaw(1986GPCL),12andspeciallawsandregulationsofthatarea.
13PartIItrackstheearlydevelopmentofthelegalandregulatoryframeworkforthecommodityandfinancialfuturesmarketinChina.
PartIIIrecountsthedevelopmentofprinciplesandproceduresfordisputeresolutionsurroundingfuturestrading,byexaminingthedisputeresolutionproceduresdevelopedbytheSupremePeople'sCourt,securitiesprofessionalassociationsandgovernmentsecuritiesregulators.
PartIVdefinesfuturescontractsunderChinesesecuritieslawandregulation,andPartVintroducestheproceduresandrequirementsforengaginginfuturestrading.
PartVIelaboratesonfuturestradingascarriedoutbyfuturesbrokerfirmsontheirclients'instructionsandrelatedtransactionalissues.
Next,PartVIIsetsforthissuessurroundingforcedliquidationbyafuturesThisarticlewillfirstexaminetheemergenceanddevelopmentofChina'sfuturesmarketandthecorrespondingdevelopmentofregulatoryandjudicialrules,andthenfocusonseverallegalaspectsoffuturestrading,includingtheregulationofbrokerentryintothefuturestradingmarket,theresponsibilitiesoffuturesexchangesinoverseeingfuturestrading,andfurtheraspectsofthefinancialfuturesmarket.
Historically,theseissuesgeneratedarelativelyhighrateofdisputes,particularlyduringthe1990s.
Discussionsthereforeincludeanexaminationoftherangeofpeople'scourtcasesadjudicatinglegalprinciples,administrativeregulationsandjudicialproceduralrulesasappliedandasevolvedinpastyears.
InconsideringtheemergenceanddevelopmentofChina'scommodityandfinancialfuturesmarketinthepastdecades,thisarticleexamineshowthecountry'scommodityandfinancialfuturesmarketdevelopedthroughatortuouspassage,andfurthersubmitsthatanappropriateandbalancedlegal,regulatoryandjudicialframeworkiscrucialtoensurethehealthyandsustainabledevelopmentofthecommodityandfinancialfuturesmarketinChina.
12.
Minfatongze[GeneralPrinciplesofCivilLaw](promulgatedbytheNat'lPeople'sCong.
,Apr.
12,1986,effectiveJanuary1,1987),availableathttp://www.
court.
gov.
cn/lawdata/law/civil/200807310022.
htm(lastvisitedMar.
20,2009)(P.
R.
C.
)[hereinafter1986GPCL].
13.
See,e.
g.
,Zuigaorenminfayuanguanyushenlipiaojujiufenanjianruoganwentideguiding[SeveralProvisionsoftheSupremePeople'sCourtonHearingDisputesInvolvingNegotiableInstruments](promulgatedNov.
14,2000,effectiveNov.
21,2000),availableathttp://www.
law-lib.
com/law/law_view.
aspid=528(lastvisitedApr.
24,2009)(P.
R.
C.
);Zuigaorenminfayuanguanyushenlizhengquanshichangyinxujiachengshuyinfademinshipeichanganjianderuoganguiding[SeveralProvisionsoftheSupremePeople'sCourtonHearingCivilCompensationCasesArisingFromFalseStatementsontheSec.
Mkt.
](promulgatedJan.
9,2003,effectiveFeb.
1,2003),availableathttp://www.
law-lib.
com/law/law_view.
aspid=42438(lastvisitedApr.
24,2009)(P.
R.
C.
);Zuigaorenminfayuanguanyushenlishejiguoyoutudishiyongquanhetongjiufenanjianshiyongfalūwentidejieshi[InterpretationsoftheSupremePeople'sCourtonApplicationofLawinHearingDisputesonContractsInvolvingState-OwnedLandUseRights](promulgatedJune18,2005,effectiveAug.
1,2005),availableathttp://rmfyb.
chinacourt.
org/public/detail.
phpid=84406(lastvisitedApr.
24,2009)(P.
R.
C.
).
2009]TheFuturesMarketinChina381exchangeorfuturesbrokerfirm.
PartVIIIexaminestheresponsibilitiesoffuturesexchangesinoverseeingfuturestrading.
PartIXthencomparesthedevelopmentofthefinancialfuturesmarkettothecommodityfuturesmarketinChina.
Finally,PartXconcludesthatanappropriateandbalancedlegal,regulatoryandjudicialframeworkiscrucialtoensurethehealthyandsustainabledevelopmentofthecommodityandfinancialfuturesmarketinChina.
II.
THEDEVELOPMENTOFREGULATIONOFTHEFUTURESMARKETINCHINATheearly1990switnessedtherapidestablishmentoffuturesexchangesinChina.
Attheheightoftheexpansion,fiftyfuturesexchangeswereestablishedinmajorcitiesthroughoutthecountry.
14In1993,suchblindexpansionledtoproblemswithexcessivespeculativetradingandvariousillegalactivities,whichpromptedthegovernmenttoimposetightcontrolovertherapidgrowthandensuingactivitiesofthefuturesmarket.
15Aconsolidationprocesssubstantiallyreducedthenumberoffuturesexchangestofourteenbythemiddleofthe1990s.
16Thisconsolidationprocesscontinuedintothelate1990s,wherebytheremainingfourteenfuturesexchangeswerefurtherconsolidatedtothethreenow-existingexchanges:17theZhengzhouCommodityExchange,theShanghaiFuturesExchange,18andtheDalianCommodityExchange.
1914.
SeeQihuojiaoyiminshizeren[CIVILLIABILITIESOFFUTURESTRADING]Preface,1(WuQingbao&JiangXiangyangeds.
,ChinaLegalSystemPublishingHouse2003)(inlookingbrieflyatthehistoryofChina'sfuturesmarket,theauthorsaidthatthefuturesmarket"experiencedaperiodofblindexpansionduringtheearlystageoftrialhereinafterCIVILLIABILITIESOFFUTURESTRADING].
15.
OnNovember14,1993,theStateCouncilissuedtheNoticeoftheStateCouncilonFirmlyStoppingBlindDevelopmentoftheFuturesMarket(Guowuyuanguanyujianjuezhizhiqihuoshichangmangmufazhandetongzhi),whichstated,amongotherthings,that"[t]hefuturesmarket.
.
.
hashighriskandspeculation.
.
.
.
Basedontheactualcircumstancesofourcountryatitscurrentstage,futuresmarketsmustbestrictlycontrolledandcannotdevelopblindly,exceptforaselectfewcommoditiesandlocationsfortrialexperimentation.
"SeeTheNoticeoftheSt.
CouncilonFirmlyStoppingBlindDev.
oftheFuturesMkt.
,supranote4.
16.
SeeCIVILLIABILITIESOFFUTURESTRADINGsupranote14,atPreface,1.
17.
TheNoticeoftheStateCouncilonFurtherConsolidation&StandardizationoftheFuturesMarketissuedonAugust1,1998setout,amongotherthings,aplanfortheconsolidationoftheexistingfourteenfuturesexchangesintothreebymergingorrestructuringthem.
Forexample,theNoticerequiredthatShanghaiCommodityExchange,ShanghaiMetalExchangeandShanghaiGrain&OilExchangebemergedintooneasShanghaiFuturesExchange.
SeeGuowuyuanguanyujinyibuzhengdunheguifanqihuoshichangdetongzhi[TheNoticeoftheSt.
CouncilonFurtherConsolidation&StandardizationoftheFuturesMkt.
](promulgatedbytheSt.
Council,Aug.
1,1998,effectiveAug.
1,1998),availableathttp://law.
baidu.
com/pages/chinalawinfo/2/10/b710b4653690843ae08d472ff275dbfa_0.
html(lastvisitedMar.
30,2009)(P.
R.
C.
).
Alongsidethe18.
TheShanghaiFuturesExchangewasestablishedin1998bymergingtheShanghaiCommodityExchange,ShanghaiMetalExchange,andShanghaiGrain&OilExchangeandbusinessstartedinDecember1999.
Futuresproductscurrentlyincludecopper,aluminium,naturalrubber,fueloil,zincandgoldfuturescontracts.
SeeShanghaiFuturesExchangeHomePage,382BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3expansionofthefuturesmarket,overonethousandfuturestradingfirmswerefounded,althoughthisnumberhassubsequentlyreducedtolessthantwohundred.
20Between1993and1998,centralandlocalgovernmentsissuedvariousregulations,includingtheProvisionalMeasuresontheAdministrationofRegistrationofFuturesBrokerFirms,21theNoticeoftheStateCouncilonFirmlyStoppingBlindDevelopmentoftheFuturesMarket,22theOpinionoftheGeneralOfficeoftheStateCouncilSecuritiesCommitteeonFirmlyStoppingBlindDevelopmentoftheFuturesMarket,23theProvisionalMeasuresontheAdministrationofPersonnelWorkinginFuturesBusinessOrganizations,24theRegulationsontheAdministrationofShanghaiFuturesMarket,25andtheNoticeoftheStateCouncilonFurtherConsolidationandStandardizationoftheFuturesMarket.
26ThecentralpurposeofthosegovernmentdocumentswastodevelopafuturesmarketinChinawithgreatcaution:ononehand,thefuturesmarketwasallowedtocontinuetoexistanddevelop,butontheotherhand,itscontinuedexistenceanddevelopmentwastightlycontrolledandregulated.
27http://www.
shfe.
com.
cn(follow"AbouttheFuturesExchange"("GuanYuQiJiaoSuo")hyperlink)(lastvisitedMar.
4,2009).
19.
TheDalianCommodityExchange,locatedinDalian,Liaoning,wasestablishedonFebruary28,1993.
Futuresproductscurrentlyincludecorn,soybeansNo.
1andNo.
2,soybeanmeal,soybeanoil,linearlowdensitypolyethylene(LLDPE)andRBDpalmoilfuturescontracts.
SeeDalianCommodityExchangeHomePage,http://www.
dce.
com.
cn(follow"AbouttheExchange"("GuanYuJiaoYiSuo")hyperlink)(lastvisitedMar.
4,2009).
20.
SeeCIVILLIABILITIESOFFUTURESTRADING,supranote14,atPreface,1.
21.
SeeTheProvisionalMeasuresontheAdmin.
ofRegistrationofFuturesBrokerFirms,supranote4.
22.
SeeTheNoticeoftheSt.
CouncilonFirmlyStoppingBlindDev.
oftheFuturesMkt.
,supranote4.
23.
SeeTheNoticeoftheGen.
OfficeoftheSt.
CouncilSeekingInstructionsonSeveralOpinionsonFirmlyStoppingBlindDev.
oftheFuturesMkt.
,supranote4.
24.
Qihuojingyingjigougongyerenyuanguanlizhanxingbanfa[ProvisionalMeasuresontheAdmin.
ofPers.
WorkinginFuturesBus.
Org.
](promulgatedbytheSt.
CouncilSec.
Comm'nNov.
7,1994,effectiveNov.
7,1994)(repealed2000),availableathttp://law.
baidu.
com/pages/chinalawinfo/1/8/fe426cc01ba804a104d29a212e99a39d_0.
html(lastvisitedMar.
30,2009)(P.
R.
C).
25.
Shanghaishiqihuoshichangguanliguiding[RegulationsontheAdmin.
ofShanghaiFuturesMkt.
](promulgatedbytheShanghaiMun.
Gov't,Dec.
5,1994,effectiveJan.
1,1995,NoticeNo.
87)(repealed1999),availableathttp://law.
baidu.
com/pages/chinalawinfo/1678/9/7bc476c608a726b5c8887a18cdedfd50_0.
html(lastvisitedMar.
30,2009)(P.
R.
C).
26.
SeeTheNoticeoftheSt.
CouncilonFurtherConsolidation&StandardizationoftheFuturesMkt.
,supranote17.
27.
Oneoftheprinciplesstatedinthe1993NoticeoftheStateCouncilonFirmlyStoppingBlindDevelopmentoftheFuturesMarketwas"[t]ostartinastandardizedmanner,strengthenlegislationandtosubjecteverythingtoexperimentandstrictcontrol.
"(guifanqibu,jiaqianglifa,yiqiejingguoshiyanheyangekongzhi).
SeeTheNoticeoftheSt.
CouncilonFirmlyStoppingBlindDev.
oftheFuturesMkt.
,supranote4.
Forinstance,somecommodityfuturescontractswereremovedfromtheproductlistof2009]TheFuturesMarketinChina383commodityexchanges,28tradingofforeignexchangefutures29andgovernmentbondfutureswassuspended,30andoffshoretradingofcommodityfuturesproductswascancelled.
31InJune1999,theStateCouncilmadeanimportantstepintheregulationofthefuturesmarketbypromulgatingthe1999ProvisionalRegulations,3228.
SeeGuowuyuanzhengquanweiyuanhuiguanyugingzhigangcai,shitang,meitanqihuojiaoyiqingshidetongzhi[NoticeoftheGen.
OfficeoftheSt.
CouncilRelayingtheSt.
CouncilSecuritiesComm.
AskingforInstructionsonStoppingTradingFuturesofSteel,Sugar&Coal](promulgatedbytheGen.
OfficeoftheSt.
Council,Apr.
6,1994),availableathttp://www.
law-lib.
com/law/law_view.
aspid=57907(lastvisitedMar.
30,2009)(P.
R.
C)(suspendingfurthertradingandlistingofstandardfuturescontractsofsteel,sugarandcoal).
29.
SeeGuanyuguanche'Guanyuyanlichachufeifawaihuiqihuohewaihuianjinjiaoyihuodongdetongzhi'dehuiyijiyaodetongzhi[NoticeontheSummaryoftheMeetingImplementingtheNoticeonSternlyInvestigatingandDealingwithIllegalTradingActivitiesinForeignExch.
Futures&ForeignExch.
DepositTrading](promulgatedjointlybytheChinaSec.
andRegulationComm.
,theSt.
Admin.
ofForeignExch.
,theSt.
Admin.
forIndus.
&Commerce,&theMinistryofPub.
Sec.
,Dec.
14,1994),availableathttp://www.
law-lib.
com/law/law_view.
aspid=59481(lastvisitedMar.
30,2009)(P.
R.
C)[hereinafterTheNoticeontheSummaryoftheMeetingImplementingtheNoticeonSternlyInvestigating&DealingwithIllegalTradingActivitiesinForeignExch.
Futures&ForeignExch.
DepositTrading].
TheNoticestatedthat"inalongperiodoftimeinthefuture,ourcountrywillnotengageinexperimentationintheseareasSeeTheNoticeontheSummaryoftheMeetingImplementingtheNoticeonSternlyInvestigating&DealingwithIllegalTradingActivitiesinForeignExch.
Futures&ForeignExch.
DepositTrading,supranote29,at1.
30.
SeeGuanyuzantingguozhaiqihuojiaoyishidiandejinjitongzhi[UrgentNoticeonSuspensionofTrialsofGov'tBondFuturesTrading](promulgatedbytheChinaSec.
RegulatoryComm'n,May17,1995,repealedApr.
9,2002),availableathttp://law.
baidu.
com/pages/chinalawinfo/1/26/0870d2f6e4724ce6053131f49d1970b0_0.
html(lastvisitedMar.
30,2009)(P.
R.
C.
)[hereinafterTheUrgentNoticeonSuspensionofTrialsofGov'tBondFuturesTrading].
AccordingtotheNotice,thetrialoftradinggovernmentbondfutureswassuspendedwitheffectasofMay18,1995,&May31,1995wassetasthedeadlineforclearingoutexistingpositionsbyexchanges.
Seeid.
31.
SeeGuanyuqihuojingjigongsizhuxiaojingwaiqihuoyewuyouguanwentidetongzhi[NoticeonRelevantIssuesaboutCancellationbyFuturesBrokerFirmsofOffshoreFuturesBus.
](promulgatedbytheChinaSec.
RegulatoryComm'n,Sept.
12,1994)(repealedApr.
10,2000),availableathttp://old.
csrc.
gov.
cn/n575458/n575742/n2529771/2569013.
html(lastvisitedApr.
24,2009)(P.
R.
C)[hereinafterTheNoticeonRelevantIssuesaboutCancellationbyFuturesBrokerFirmsofOffshoreFuturesBus.
].
Thisrequiredfuturesbrokerfirmstostoptheiroffshorefuturesbusinesswithimmediateeffect,nottoacceptnewcustomers,andnottotakeonneworders.
Seeid.
32.
Qihuojiaoyiguanlizanxingtiaoli[ProvisionalRegulationsontheAdmin.
ofFuturesTrading](promulgatedbytheSt.
Council,June2,1999,effectivefromSept.
1,1999)(repealed2007),availableathttp://www.
csrc.
gov.
cn/n575458/n6807967/n6808047/6808242.
html(lastvisitedApr.
24,2009)(P.
R.
C.
)[hereinafterThe1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading];The2007RegulationsontheAdmin.
ofFuturesTrading,supranote5.
thefirstformalregulationsonfuturestrading.
InAugust1999,theChinaSecuritiesRegulatoryCommission(CSRC),whichfunctionsasthecountry'ssecuritiesregulatorbyimplementingtheStateCouncil'spolicyandformulatingdetailedsecuritiesregulatoryrules,setforthfourprovisionsinaccordancewiththe1999ProvisionalRegulations.
384BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3Thefourprovisionseffectuatedtheregulationoffuturesexchanges,33theregulationoffuturesbrokerfirms,34theenactmentofqualificationrequirementsforseniormanagersinfuturesbrokerfirms,35andtheenactmentofqualificationrequirementsforenteringintothefuturesbusiness.
36InJanuaryandMay2002,thosefourprovisionswereamendedbytheCSRC,changingsomeregulatedareas,suchasthatoffuturesbrokerfirms,37whileaddingmoredetailedprovisionsinothers.
3833.
Qihuojiaoyisuoguanlibanfa[MeasuresontheAdmin.
ofFuturesExch.
](promulgatedbytheChinaSec.
RegulatoryComm'n,Aug.
31,1999),availableathttp://law.
baidu.
com/pages/chinalawinfo/2/40/a424b0999501e67986303d9155bec527_0.
html(lastvisitedMar.
30,2009)(P.
R.
C.
)[hereinafterThe1999MeasuresontheAdmin.
ofFuturesExch.
].
34.
Qihuojingjigongsiguanlibanfa[MeasuresontheAdmin.
ofFuturesBrokerFirms](promulgatedbytheChinaSec.
RegulatoryComm'n,Aug.
31,1999,effectiveSept.
1,1999)(repealed2002),availableathttp://law.
baidu.
com/pages/chinalawinfo/2/40/6334b1c89f774255c6c5e610840a1997_0.
html(lastvisitedMar.
30,2009)(P.
R.
C.
)[hereinafterThe1999MeasuresontheAdmin.
ofFuturesBrokerFirms].
35.
Qihuojingjigongsigaojiguanlirenyuanrenzhizigeguanlibanfa[MeasuresontheAdmin.
ofQualificationsforAppointmentofSeniorMgmt.
Pers.
ofFuturesBrokerFirms(promulgatedbytheChinaSec.
RegulatoryComm'n,Aug.
31,1999,effectiveSept.
1,1999),availableathttp://finance.
ce.
cn/futures/qhpdqhxx/qhjygz/200706/14/t20070614_11753454.
shtml(P.
R.
C).
36.
Qihuoyegongyerenyuanzigeguanlibanfa),[MeasuresontheAdmin.
ofQualificationsforPers.
EngaginginFuturesBus.
](promulgatedbytheChinaSec.
RegulatoryComm'n,Aug.
31,1999,effectiveSept.
1,1999),availableathttp://www.
stockstar.
com/info/darticle.
aspxid=GA,20010705,00005036(lastvisitedMar.
30,2009)(P.
R.
C.
).
37.
Forexample,futuresbrokerfirmswereallowedtoengageinfuturesconsultancyandtrainingbusinessunderArticle6(2)ofthe2002MeasuresontheAdministrationofFuturesBrokerFirmswhilethisprovisionwasnotspelledoutinthe1999MeasuresontheAdministrationofFuturesBrokerFirms.
SeeThe1999MeasuresontheAdmin.
ofFuturesBrokerFirms,supranote34;Qihuojingjigongsiguanlibanfa[MeasuresontheAdmin.
ofFuturesBrokerFirms]Art.
6(2),(promulgatedbytheChinaSec.
RegulatoryComm'n,May17,2002,effectiveJuly1,2002),availableathttp://old.
csrc.
gov.
cn/n575458/n776436/n805040/n825027/1988508.
html(lastvisitedApr.
24,2009)(P.
R.
C.
).
38.
Forexample,the2002MeasuresontheAdministrationofFuturesExchangeshasmoredetailedprovisionsconcerningdepositsmadebymembersofafuturesexchangethanthe1999MeasuresontheAdministrationofFuturesExchanges.
SeeThe1999MeasuresontheAdmin.
ofFuturesExch.
,supranote33;Qihuojiaoyisuoguanlibanfa[MeasuresontheAdmin.
ofFuturesExch.
](promulgatedbyChinaSec.
RegulatoryComm'n,May17,2002,effectiveJuly1,2002,repealed2007),availableathttp://old.
csrc.
gov.
cn/n575458/n776436/n805040/n825027/1988517.
html(lastvisitedApr.
24,2009)(P.
R.
C.
)[hereinafterThe2002MeasuresontheAdmin.
ofFuturesExch.
];Qihuojiaoyisuoguanlibanfa[MeasuresontheAdmin.
ofFuturesExch.
](promulgatedbytheChinaSec.
RegulatoryComm'n,Apr.
9,2007,effectiveApr.
15,2007),availableathttp://www.
csrc.
gov.
cn/n575458/n870416/n1337670/n3955943.
files/n3955942.
doc(lastvisitedApr.
24,2009)(P.
R.
C.
)[hereinafterThe2007MeasuresontheAdmin.
ofFuturesExch.
].
Altogether,the1999ProvisionalRegulationsandthefourCSRCprovisionsservedasanimpetustothestandardizationofChina'snewfuturesmarketandalsoprovidedguidancetothepeople'scourts,whichwerehandlingtheinfluxoffuturesdisputes.
2009]TheFuturesMarketinChina385TheAsianfinancialcrisiseruptedin1997–1998,pushingmanycountriesintorecessionandthreateningChina'sfinancialsystem.
39Twoyearslater,inlate1999,onlyalimitednumberofstate-ownedenterpriseswereallowedtoengageinoffshoretradingofcommoditiesfuturesproductsforhedgingpurposes,andeventhosetransactionsweresubjecttoapprovalbygovernmentregulators.
40Anumberofprotocolswereissuedtoregulateandfacilitatethisactivity,includingtheNoticeonRelevantIssuesaboutApplicationforOffshoreFuturesBusiness41andtheAdministrativeMeasuresonOffshoreFuturesHedgingBusinessbyState-ownedEnterprises.
42Undertheseprotocols,centralgovernmentapprovalwasrequiredforanyengagementinoffshoretradingofcommoditiesfuturesproductsbystate-ownedenterprises.
43SuchengagementsalsoneededtomeetconditionssetoutinArticles6,447and8oftheAdministrativeMeasuresonOffshoreFuturesHedgingBusinessbyState-ownedEnterprises.
4539.
Forageneraldiscussionaboutthe1997–1998Asianfinancialcrisis,seeTHEASIANFINANCIALCRISISANDTHEARCHITECTUREOFGLOBALFINANCE(GregoryW.
Noble&JohnRavenhilleds.
,CambridgeUniversityPress,2000).
40.
Seeinfranotes42,43andaccompanyingtext.
41.
SeeGuanyushenqingjingwaiqihuoyewuyouguanwentidetongzhi[NoticeonRelevantIssuesaboutApplicationforOffshoreFuturesBus.
](promulgatedjointlybytheChinaSec.
RegulatoryComm'n,St.
Econ.
&TradeComm'n,St.
Admin.
forIndus.
&Commerce,&St.
Admin.
ofForeignExch.
,Oct.
15,1999,effectiveOct.
15,1999)(repealed2003),availableathttp://www.
gov.
cn/gongbao/content/2000/content_60613.
htm(lastvisitedMar.
30,2009)(P.
R.
C.
).
42.
Guoyouqiyejingwaiqihuotaoqibaozhiyewuguanlibanfa[Admin.
MeasuresonOffshoreFuturesHedgingBus.
byState-ownedEnters.
](promulgatedjointlybytheChinaSec.
RegulatoryComm'n,St.
BureauofForeignExch.
,St.
Econ.
&TradeComm'n,MinistryofForeignTrade&Econ.
Coop.
,&St.
Admin.
forIndus.
&Commerce,May24,2002,effectiveMay24,2002),availableathttp://www.
stockstar.
com/info/darticle.
aspxid=GA,20011022,00005122(lastvisitedMar.
30,2009)(P.
R.
C.
)[hereinafterTheAdmin.
MeasuresonOffshoreFuturesHedgingBus.
byState-ownedEnters.
].
43.
Article5(1)oftheTheAdministrativeMeasuresonOffshoreFuturesHedgingBusinessbyState-ownedEnterprisesstatesthatenterprisesengaginginoffshorefuturesbusinessmustbeapprovedbytheStateCouncil.
SeeTheAdmin.
MeasuresonOffshoreFuturesHedgingBus.
byState-ownedEnters.
,supranote42,atArt.
5(1).
44.
Article6setsoutalistofconditionsforengagementinoffshorefuturesbusinessbystate-ownedenterprisesincluding,amongothers,thattheenterprisehasimportandexportrights(art.
6(2));thereisdefinitelyahedgingneedinoffshorefuturesmarketforimportandexportcommoditiesorothercommoditiespurchasedorsoldonoffshorespotmarket(art.
6(3));thereisasoundandcomprehensivemanagementsystemforoffshorefuturesbusiness(art.
6(4));andthereareatleastthreepersonswhohaveoffshorefuturesbusinessexperienceoveroneyearandwhohaveobtainedqualificationscertifiedbytheCSRCoroffshorefuturesregul.
ators,includingspecialfuturesriskmanagementperson,andthereisatleastoneseniormanagementpersonwhoknowoffshorefuturestradingandwhohavesatisfiedotherrequirementsoftheCSRC.
SeeTheAdmin.
MeasuresonOffshoreFuturesHedgingBus.
byState-ownedEnters.
,supranote42,atArt.
6.
45.
Article7requiresanapplicantenterprisetosubmitalistofapplicationdocumentsincluding,amongothers,abusinesslicenseandqualificationasanimportandexportenterprise;Article8requirestheapplicantenterprise,onceapproved,toobtaintherelevantlicensesandregisterwiththerelevantauthoritiesbeforeengaginginoffshorefuturestrading.
SeeTheAdmin.
MeasuresonOffshoreFuturesHedgingBus.
byState-ownedEnters.
,supranote42,atArt.
7–8.
Theseregulatoryrequirementsandproceduresreflectedthe386BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3government'scautiouspositionthatoffshoretradingwasnecessaryonlyinsofarastohedgeagainstrisksarisingfromfluctuationofexchangeratesorotherinternationalmarketrisks;otherwisespeculativeoffshoretradingwasnotpermissible.
46InDecember2001,ChinaformallybecameamemberoftheWorldTradeOrganization(WTO)47andbegantoimplementitsWTOcommitmentsinthefinancialservicessectors,includingitscommitmenttoopenChina'ssecuritiesmarkettoforeigninvestment.
48InNovember2002,the16thNationalCongressoftheCommunistPartyofChinasetoutastrategicgoalofdevelopingChinaintoa"well-offsociety"(xiaokangshehui).
49InOctober2003,theThirdPlenarySessionofthe16thCentralCommitteeoftheCommunistPartyofChinasoughttofurtherChina'spolicygoalsbyoutliningmajortaskstofurtherimproveChina'smarketeconomy.
5046.
Article37(1)oftheTheAdministrativeMeasuresonOffshoreFuturesHedgingBusinessbyState-ownedEnterprisesgrantstheCSRCthepowertoconductroutineinspectionsofthestate-ownedenterpriseswhoarelicensedtoengageinoffshoretradingofcommoditiesfuturesproducts.
Suchinspectionsincludewhethertheenterprisecarriesoutspeculativetrading.
SeeTheAdmin.
MeasuresonOffshoreFuturesHedgingBus.
byState-ownedEnters.
,supranote42,atArt.
37(1).
47.
OnNovember10,2001,asigningceremonyonChina'saccessiontotheWTOwasheldatDoha,followingwhichChinaformallybecameamemberoftheWTOonDecember11,2001.
SeePressRelease,WorldTradeOrganization,WTOMinisterialConferenceApprovesChina'sAccession(Nov.
10,2001),availableathttp://www.
wto.
org/english/news_e/pres01_e/pr252_e.
htm.
48.
SeeZhuSanzhu,ImplementingChina'sWTOCommitmentsinChineseFinancialServicesLaw,THECHINAREVIEW,Vol.
6(2),3–33(Fall2006),availableathttp://cup.
cuhk.
edu.
hk/ojs/index.
php/ChinaReview/article/view/176.
Inparticular,seethesectiontitledSecurities,at14–21.
49.
The16thNationalCongressoftheCommunistPartyofChinawasheldonNovember8,2002,inwhichthen-presidentJiangZeminmadeaspeechentitled"BuildaWell-offSocietyinanAll-RoundWayandCreateaNewSituationinBuildingSocialismwithChineseCharacteristics.
"Inhisspeech,PresidentJiangsetoutthegoalsforachievingawell-offsociety,oneofwhichwasChina'sGDPwouldbequadrupledby2020fromthelevelin2000.
SeeJiangZemin,President,16thNat'lCong.
oftheCommunistPartyofChina,Addressatthe16thNat'lCong.
oftheCommunistPartyofChina:BuildaWell-offSocietyinanAll-RoundWayandCreateaNewSituationinBuildingSocialismwithChineseCharacteristics(Nov.
8,2002),availableathttp://news.
xinhuanet.
com/ziliao/2002-11/17/content_693542.
htm(lastvisitedMar.
30,2009).
50.
TheThirdPlenarySessionofthe16thCentralCommitteeoftheCommunistPartyofChinaadoptedtheDecisionontheImprovementoftheSocialistMarketEconomicSystemdatedOctober14,2003.
TheDecisionoutlinedtaskstofurtherimproveChina'smarketeconomytobuildawell-offsociety,coveringawiderangeofareasofeconomicsystem.
ForexampleinSection3,itcoveredstate-ownedenterprisereform,andinSection7,financialsystemreform.
ZhonggongZhongyangguanyuwanshanshehuizhuyishichangjingjitizhiruoganwentidejueding[DecisionontheImprovementoftheSocialistMkt.
Econ.
System]Sec.
3,Sec.
7,(adoptedbythe16thCent.
Comm.
oftheCommunistPartyofChina,Oct.
14,2003),availableathttp://www.
people.
com.
cn/GB/shizheng/1024/2145119.
html.
China'scapitalmarketwasscrutinizedbythecentralgovernmentunderthepolicydecisionsmadebythe16thNationalCongressoftheCommunistPartyofChinaanditsThirdPlenarySession,leadingtotheStateCouncil'sissuanceofSeveralOpinionsonPromotingtheReform,Opening-upandSteadyDevelopmentofChina'sCapitalMarketin20042009]TheFuturesMarketinChina387(commonlyknownasthe"Nine-pointOpinion").
51TheNine-pointOpinionrepresentedthecentralgovernment'sassessmentandcomprehensivepolicyforthefutureofChina'scapitalmarket.
Inpreviousyears,theStateCouncilhadmadesimilarpolicystatementsonChina'scapitalmarket52thatfocusedmoreonefficientregulationofChina'semergingsecuritiesmarket;incontrast,however,theNine-pointOpinionfocusedspecificallyontheopening-upandsteadydevelopmentofChina'scapitalmarket.
53China'sfinancialfuturesmarketwasre-establishedinthetwoyearsfollowingtheissuanceoftheNine-pointOpinion.
TradingofgovernmentbondfuturesandfinancialbondfuturesresumedonJune15,2005viaaninter-bankbondmarket,andthePeople'sBankofChinapromulgatedagroupofregulationsandtradingrules.
54TheestablishmentoftheCFFEXin200655wasalong-awaitedandwelcomemove.
Itwasaccompaniedbyanewsetoftradingrulescovering,amongotherthings,financialfuturestrading,56financialfuturessettlement,57andriskcontrolmanagementbyafinancialfuturesexchange.
5851.
Guowuyuanguanyutuijinzibenshichanggaigekaifanghewendingfazhanderuoganyijian[SeveralOpinionsoftheSt.
CouncilonPromotingtheReform,Opening-up&SteadyDevelopmentofChina'sCapitalMkt.
](announcedbytheSt.
Council,Jan.
31,2004),availableathttp://news.
xinhuanet.
com/zhengfu/2004-02/02/content_1293905.
htm(lastvisitedMar.
30,2009)(P.
R.
C.
)[hereinafterSeveralOpinionsoftheSt.
CouncilonPromotingReform,Opening-up&SteadyDevelopmentofChina'sCapitalMkt.
].
52.
SeeGuowuyuanguanyujinyibujiaqiangzhengquanshichanghongguanguanlidetongzhi[TheNoticeoftheSt.
CouncilonFurtherStrengtheningMacro-administrationoftheSec.
Mkt.
](promulgatedbytheSt.
Council,Dec.
17,1992),availableathttp://law.
baidu.
com/pages/chinalawinfo/0/60/aad147dca12dac5abe2f2c15d32a3a5b_0.
html(lastvisitedMar.
30,2009)(P.
R.
C.
)[hereinafterTheNoticeoftheSt.
CouncilonFutherStrengtheningMacro-administrationoftheSec.
Mkt.
].
53.
SeeSeveralOpinionsoftheSt.
CouncilonPromotingReform,Opening-up&SteadyDevelopmentofChina'sCapitalMkt.
,supranote51,(statingChinashould"[s]teadilydevelopthefuturesmarket"and"developderivativeproductsrelatedtostocksandbonds54.
SeeQuanguoyinhangjianzhaiquanshichangzhaiquanyuanqijiaoyiguanliguiding[ProvisionsontheAdmin.
ofBondFuturesTradingonNat'lInter-bankBondMkt.
](promulgatedbythePeople'sBankofChina,May11,2005,effectiveJune15,2005),availableathttp://law.
baidu.
com/pages/chinalawnfo/5/82/723a947d4ec7347c615e398ced222ceb_0.
html(lastvisitedMar.
30,2009)(P.
R.
C.
)[hereinafterTheProvisionsontheAdmin.
ofBondFuturesTradingonNat'lInter-bankBondMkt.
].
55.
SeeChinaFinancialFuturesExchangeHomePage,http://www.
cffex.
com.
cn(follow"AbouttheExchange"("GuanyuJiaoYiSuo")hyperlink)(lastvisitedFeb.
20,2009).
56.
SeeTradingRulesofChinaFinancialFuturesExchange,http://www.
cffex.
com.
cn/wps/wcm/connect/cffex_dev/CFFEX_EN/SiteArea_RulesRegulation/SiteArea_CFFXRules/rules2008051902;seealsoDetailedTradingRulesofChinaFinancialFuturesExchange,http://www.
cffex.
com.
cn/wps/wcm/connect/cffex_dev/CFFEX_EN/SiteArea_RulesRegulation/SiteArea_CFFEXRules/rules2008051904.
57.
DetailedClearingRulesofChinaFinancialFuturesExchange,http://www.
cffex.
com.
cn/wps/wcm/connect/cffex_dev/CFFEX_EN/SiteArea_RulesRegulation/SiteArea_CFFXRules/rules2008051905.
58.
MeasuresofChinaFinancialFuturesExchangeontheAdministrationofRiskControl,http://www.
cffex.
com.
cn/wps/wcm/connect/cffex_dev/CFFEX_EN/SiteArea_RulesRegulation/SiteArea_CFFEXRules/rules2008051908.
Unliketheuncontrolledgrowthintheearly1990s,there-establishmentofthefinancialfuturesmarketandthe388BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3introductionoffinancialfuturesproductsafter2004werepartofthecontinuingandsustainabledevelopmentofChina'ssecuritiesmarket.
Thespecificregulationsandrulespromulgatedtofacilitateandregulatethere-establishmentofthefinancialfuturesmarketwereanextensionofthesecuritiesandfuturesregulatoryframeworkestablishedbythe1998SecuritiesLaw,asamendedin2005(2005SecuritiesLaw)59The1999ProvisionalRegulationswereamendedcomprehensively,includinganincreaseoftwentynewarticlesinthe2007Regulations.
andthe1999ProvisionalRegulations.
60Importantchangesincludedtherelaxationofapreviousbanonfinancialinstitutionsengaginginfuturestrading,61thecreationofafuturesinvestorsprotectionfund,62andtheintroductionofadivisionsystembetweensettlementmembers(jiesuanhuiyuan)andnon-settlementmembers(feijiesuanhuiyuan).
63Outoftheninety-onearticlesinthe2007Regulations,abouttwenty-fivearticlesleftaprovisionopenOnthewhole,the2007RegulationsdesignedabalancedregulatoryframeworkforChina'scommodityandfinancialfuturesmarketbyliftingsomeunnecessaryrestrictionsonnormalfuturestradingactivitiesandparticipants;however,the2007Regulationsalsocautiouslyimplementedstronggovernmentsupervisionofthemarket.
6459.
Zhengquanfa[SecuritiesLaw],(adoptedbytheStandingComm.
oftheNat'lPeople'sCong.
,Dec.
29,1998,effectiveJuly1,1999,amendedOct.
27,2005,effectiveJan.
1,2006),availableathttp://www.
csrc.
gov.
cn/n575458/n870399/n1337876/2052726.
html(lastvisitedApr.
24,2009)(P.
R.
C.
)[hereinafterSecuritiesLaw].
60.
The2007RegulationsontheAdministrationofFuturesTradinghas91articles,anincreasefrom71articlesinthe1999ProvisionalRegulationsontheAdministrationofFuturesTrading.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5.
61.
Art.
30ofthe1999ProvisionalRegulationsontheAdministrationofFuturesTradinglistedanumberofinstitutionsandindividuals,includingfinancialinstitutions,whomaynotengageinfuturestradingandforwhomfuturesbrokerfirmsmaynotacceptentrustmentstotradefutures.
SeeThe1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
30.
Article26ofthe2007RegulationsontheAdministrationofFuturesTradinghasnowremovedfinancialinstitutionsfromthislist.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
26.
62.
SeeQihuotouzizhebaozhangjijinguanlizhanxingbanfa[ProvisionalMeasuresontheAdmin.
ofFuturesInvestorsProtectionFund](issuedinaccordancewithArt.
54ofthe2007RegulationsontheAdmin.
ofFuturesTradingbytheCSRC&theMinistryofFin.
,Apr.
19,2007,effectiveAug.
1,2007),availableathttp://www.
csrc.
gov.
cn/n575458/n4239016/n6634558/n9768098/n9768555/9851522.
html(lastvisitedMar.
30,2009)(P.
R.
C.
);The2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
54.
63.
InaccordancewithArticle8ofthe2007RegulationsontheAdministrationofFuturesTrading,futuresexchangesmayadoptasystemofmembershipconsistedofsettlementmembersandnon-settlementmembers.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
8.
64.
Forexample,Article16stipulatesalistofconditionsforestablishmentofafuturescompany,thelastoneofwhichis"anyothercriteriastipulatedbythefuturessupervisionandadministrationdepartmentoftheStateCouncil.
"SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
16.
orreferredcertainmatterstoregulations2009]TheFuturesMarketinChina389yettobeissued.
65Asaresult,thefourimplementingprovisionsofthe1999ProvisionalRegulations,asamendedin2002,wereagainamendedtoaccommodatethe2007Regulations.
66Incontrasttothetentativeandad-hocregulationsandregulatorydocumentsintheearly1990s,Chinahasgraduallyestablishedalegalandregulatoryframeworkforthecommodityandfinancialfuturesmarket,withthe2007Regulationsatitscenter.
However,oneremainingissueiswhetheraspecialfutureslawwillultimatelybeenactedtoregulatethemarket.
Thedraftingprocessforalawgoverningfuturestradingstartedintheearly1990s,butwassuspendedduringthegovernment'scampaigntostopablindexpansionofChina'sfuturesmarket.
Apartfromtheuncertaintyandconfusiontheopenprovisionscreated,fulloperationoftheregulatorysystemunderthe2007Regulationsremained,andstillremains,dependentonthoseregulationsandprovisionsnotyetissued;thisleavestheregulatorysystemvulnerabletoinconsistencyamidstthecompetinginterestsofgovernmentauthorities.
67AftertheestablishmentoftheShanghaiandShenzhenStockExchangesin1990and1991,respectively,andthepromulgationoftheCompanyLawin1993,Chinacommenceddraftingitssecuritieslaws,leadingtotheenactmentoftheSecuritiesLawin1998,whichwaslateramendedin2005.
However,Chinadidnotsimilarlydelaythedraftingofsecuritieslaws.
6865.
Forexample,inaccordancewithArticle46,measuresconcerningoffshorefuturestradingbyinstitutionsorindividualsshallbeformulatedbythefuturesregulatoroftheStateCouncilinconsultationwithanumberofothergovernmentdepartmentsandregulators,suchasforeignexchangeauthority,andbeapprovedbytheStateCouncil.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
46.
66.
SeeQihuogongsidongshi,jianshihegaojiguanlirenyuanrenzhizigeguanlibanfa[MeasuresontheAdmin.
ofQualificationsforAppointmentofSeniorMgmt.
PersonnelofFuturesBrokerFirms,renamedasMeasuresontheAdmin.
ofQualificationsforAppointmentofDirs.
,Supervisors&SeniorMgmt.
PersonnelofFuturesCo.
](amended&effectiveJuly4,2007),availableathttp://law.
baidu.
com/pages/chinalawinfo/9/49/4845a83bf768bf09961ce784d2f35154_0.
html(lastvisitedMar.
30,2009)(P.
R.
C.
).
SeealsoQihuocongyerenyuanguanlibanfa[MeasuresontheAdmin.
ofQualificationsforPers.
EngaginginFuturesBus.
,renamedasMeasuresontheAdmin.
ofPers.
EngaginginFuturesBus.
](amended&effectiveJuly4,2007),availableathttp://law.
baidu.
com/pages/chinalawinfo/9/49/f3480fcde09dad9111cc58d64b9b429e_0.
html(lastvisitedMar.
30,2009)(P.
R.
C.
);The2002MeasuresontheAdmin.
ofFuturesExch.
,supranote38;The2007MeasuresontheAdmin.
ofFuturesExch.
,supranote38;Qihuogongsiguanlibanfa[MeasuresontheAdmin.
ofFuturesBrokerFirms,renamedasMeasuresontheAdmin.
ofFuturesCo.
](amendedMar.
28,2007,effectiveApr.
15,2007),availableathttp://law.
baidu.
com/pages/chinalawinfo/8/99/2992c77ed3000eeb05ffbc53ede72db4_0.
html(lastvisitedMar.
30,2009)(P.
R.
C.
)[hereinafterTheMeasuresontheAdmin.
ofFuturesCo.
].
67.
SeeCIVILLIABILITIESOFFUTURESTRADING,supranote14,atPreface,1.
In1997,thefirstsecuritiesinvestmentfundregulationwas68.
TheShanghaiStockExchangewasformallyestablishedinNovember26,1990andtheShenzhenStockExchangeinDecember1,1990.
SeeAboutShanghaiStockExchange,http://www.
sse.
com.
cn/sseportal/ps/zhs/sjs/jysjs.
shtml(lastvisitedApr.
24,2009);seealsoAboutShenzhenStockExchange,http://www.
szse.
cn/main/aboutus/bsjs/bsjj/index.
shtml(lastvisitedApr.
24,2009).
TheCompanyLawofthePeople'sRepublicofChinawasChina'sfirstcompanylawsincethefoundingofthePeople'sRepublicofChinain1949.
Thedraftingofthe1998390BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3approvedbytheStateCouncilandpromulgatedbytheStateCouncilSecuritiesCommittee.
69Inresponsetothesubstantialgrowthofthesecuritiesinvestmentfundmarketsincethelate1990s,70thesecuritiesinvestmentfundregulations,whichwereoriginallyissuedin1997,wereupgradedandincorporatedinthe2003SecuritiesInvestmentFundLaw.
71Presently,the2005SecuritiesLawandthe2003SecuritiesInvestmentFundLawstandasthetwoprominentsecuritieslawsenactedbytheStandingCommitteeoftheNationalPeople'sCongress.
72Oneissueiswhetheraseparatefutureslawshouldoperatealongsidethe2005SecuritiesLawandthe2003SecuritiesInvestmentFundLaw,oralternatively,whethertheregulationofthefuturesmarketshouldfallwithinthepurviewofthe2005SecuritiesLawwithsupplementalsupportfromfurtheradministrativeregulationscoveringspecificissuesoffuturesmarketandfuturestrading.
Somejudges,regulatorsandscholarsadvocateforacomprehensivefutureslawsothatChinamaydevelopamarketoffinancialfuturesproducts,suchasforeignexchangefuturesandshareindexfutures.
73GiventhatthefinancialfuturesandcommodityfuturesmarketsinChinaareexpectedtodevelopsubstantiallyinthefutureinlinewithChina'seconomicgrowthandfurtherreformtowardsamarketeconomy,74SecuritiesLawwentthroughalongerperiodoftimethanitssisterlegislation,the1993CompanyLaw.
Seesupranote8andaccompanyingtext.
Forthedraftingprocessofthe1998SecuritiesLaw,seeZhuSanzhu,SECURITIESREGULATIONINCHINA(2000),inparticular,ch.
1,Sec.
B,at8–14[hereinafterSECURITIESREGULATIONINCHINA].
69.
Zhengquantouzijijinguanlizanxingbanfa[ProvisionalMeasuresontheAdmin.
ofSec.
Inv.
Fund](approvedbytheSt.
CouncilNov.
5,1997,promulgatedbytheSt.
CouncilSec.
Comm.
,Nov.
14,1997),availableathttp:www.
people.
com.
cn/item/flfgk/gwyfg/1997/112203199706.
html(P.
R.
C.
).
70.
InMarch1998,twoinvestmentfundswerefirstcreatedafterthepromulgationoftheProvisionalMeasuresontheAdministrationofSecuritiesInvestmentFundinNovember1997.
Bytheendof1998,therewereonly5investmentfunds,withatotalnetvalue10.
74billionyuan;bytheendof2006,incontrast,therewere307investmentfunds,withanetvalue856.
5billionyuan.
SeeWoguozhengquantouzijijinyefazhangaikuang[AnOutlineoftheDevelopmentofSecuritiesInvestmentFundSectorinOurCountry],CHINASECURITIESDAILY,July29,2008,availableathttp://finance.
ce.
cn/fund/shou/jjgdbd/200809/27/t20080927_13674043.
shtml.
71.
Zhengquantouzijijinfa[SecuritiesInvestmentFundLaw](adoptedbytheStandingComm.
oftheNat'lPeople'sCong.
,Oct.
28,2003,effectiveJune1,2004),availableathttp://www.
china.
org.
cn/english/government/207330.
htm(lastvisitedMar.
30,2009)(P.
R.
C.
).
72.
InMarch2006,adraftingteamwassetupwithatasktoresumethedraftingprocessoftheFuturesTradingLaw.
Sincethenthedraftingteamhasbeenworkingonthedraftandmadesubstantialprogresses.
SeeRonFang&PengYong,Woguoqihuojiaoyilifaqudezhongdajinzhan[SignificantProgresshasbeenMadewithLegislationofFuturesTradingofOurCountry],XINHUANET,Dec.
4,2007,availableathttp://news.
xinhuanet.
com/finance/2007-12/04/content_7337739.
htm.
WhentheFuturesTradingLawispassedbytheStandingCommitteeoftheNationalPeople'sCongress,China'ssecuritiesprimarylawwillbeatripartiltebodyconsistingoftheSecuritiesLaw,SecuritiesInvestmentFundLawandFuturesTradingLaw.
73.
SeeCIVILLIABILITIESOFFUTURESTRADING,supranote14,atPreface,2–3.
74.
Forexample,tradingofsteelfuturescontracts,whichwassuspendedin1994,wasrecentlylaunchedinShanghaiFuturesExchangeonMarch27,2009.
Thelaunchoffuturescontractsfortwoconstructionsteelproducts–reinforcingsteelbarandwirerod–isseenasamajoreventinChina,theworld'slargestproducerandconsumerofthemental.
It"ishailedasasignthatChina's2009]TheFuturesMarketinChina391thepromulgationofafutureslawrepresentsasensiblesteptowardspromotingasetofuniformprinciplesandrulesfortheregulationanddevelopmentofChina'sfuturesmarket,andfortheresolutionofdisputesarisinginthefuturesmarket.
III.
DEVELOPMENTOFPRINCIPLESANDPROCEDURESFORTHERESOLUTIONOFDISPUTESARISINGFROMFUTURESTRADINGInthefuturesmarket'sformativeyears,thenumberoffuturestradingdisputesincreasedsharplyandfloodedthepeople'scourts.
InthewordsofthedeputypresidentoftheSupremePeople'sCourt,thefuturesmarkethadbecomea"biglitigationfamily"(susongdahu),generatingahighrateofdisputesandlitigation,75andpresentingnewanddifficultissuesbeforethepeople'scourts.
Furthermore,thesecomplicateddisputesofteninvolvedlargesumsofmoney,andinsomecasesweremulti-partylitigation.
76InApril1995,theSupremePeople'sCourtheldasymposiumtodiscusstheissuesarisingfromtheadjudicationoffuturesdisputesinthepeople'scourts.
ThishighlyvisibleriseinlitigationpromptedtheSupremePeople'sCourttocreatesomeguidelinestodirectthelocalcourtsdealingwithfuturesdisputecases.
77Judgesfromfourteenhighpeople'scourtsandsixintermediatepeople'scourtsattendedthesymposium78toaddressprominentissuesofconcern,includingtheprinciplesforhandlingfuturescases,thejurisdictionofthepeople'scourtsoverfuturescases,thequalificationsnecessarytoengageinfuturestrading,thelegalstatusandcivilliabilityofbrokers,thenatureofcontractandtortliability,theinvalidcivilactsrelatingtofuturestransactionsandthedeterminationofcivilliabilitiesofsuchacts,79steelindustryhastakenanimportantstepforwardintheprocessofmarketization.
"SeeChinamining.
org,Analysis:China'sLaunchofSteelFuturesMayChangeGlobalPricingSystem,Mar.
30,2009http://www.
chinamining.
org/News/2009-03-30/1238374395d23043.
html;seealsoSteveJames,ChineseSteelFuturesMarketScheduledforLaunchToday,REUTERS,Mar.
27,2009,http://www.
mineweb.
com/mineweb/view/mineweb/en/page39oid=80939&sn=Detail.
75.
SeeZuigaorenminfayuanguanyushenliqihuojiufenanjianruoganwentideguiding'delijieyushiyong[UNDERSTANDINGANDAPPLICATIONOF'THE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURTONSEVERALISSUESCONCERNINGADJUDICATIONOFCASESOFFUTURESDISPUTES']Preface,1(compiledbytheSecondDivisionCourtoftheSupremePeople'sCourt),(JiangBixin,ed.
,Beijing:thePeople'sCourtPublishingHouse,2003)[hereinafterUNDERSTANDING&APPLICATIONOFTHE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURT].
76.
Forexample,XiamenGuomaoGroupCo.
Ltd.
byShares&Othersv.
HainanZhongqingJiyeDev.
Ctr.
,acasedealingwithtradingofnaturalrubberfuturescontracts,involvedeighteencorporateplaintiffsandmillionsofyuan.
SeeUNDERSTANDING&APPLICATIONOFTHE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURT,supranote75,at296–312.
77.
The1995SPCFuturesJudicialGuidelines,supranote7.
78.
SeeThe1995SPCFuturesGuidelines,supranote7.
the79.
Forexample,evenifafuturesbrokerfirmengagesinfuturesbrokeragebusinesswithoutapprovalandwithoutalicense,itshallnotbeheldliableifthereisevidenceprovingthatthebrokerfirmcarriedoutthefuturestradinginaccordancewiththeclient'sinstructions.
Insucha392BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3tradingofforeignexchangedeposits,andtheapplicableburdenofproofinfuturescases.
80InOctober1995,theSupremePeople'sCourtissuedthe1995SPCFuturesJudicialGuidelines,81whichenumeratedtheAprilsymposium'spositionsandservedastheCourt'scomprehensiveresponsetotheproblematicincreaseoffuturesdisputesinthepeople'scourts.
The1995SPCFuturesJudicialGuidelinesemphasizedthatthepeople'scourts'maintasksweretodealwithfuturesdisputesfairlyandexpediently,toprotectthelawfulrightsandinterestsoftheparties,topunishillegaltradingactivities,andtomaintainorderinthefuturesmarket.
82InadditiontotheSupremePeople'sCourt'sAprilsymposium,localregulatorybodiesheldsimilarseminarsanddiscussions.
Forexample,inShanghai,thelocationofseveralfuturesexchangesandthesiteofactiveandsubstantialfuturestrading,theShanghaiSecuritiesRegulatoryOffice,inconjunctionwiththeShanghaiCommodityExchange,theMetalExchangeandtheGrain&OilExchange,organizedaseminarinJune1998todiscusshowtodealwithfuturesdisputesarisingparticularlyinthefuturesmarketofShanghai.
Thepeople'scourtsembracedthe1995SPCFuturesJudicialGuidelinesandtheybecamethefirstcomprehensivesetofprovisionalguidelinesaddressingsubstantialandproceduralissuesintheadjudicationoffuturesdisputes.
83ParticipantsincludedjudgesfromtheShanghaiHighPeople'sCourtandseveralintermediateanddistrictcourtsinShanghai.
84TheSupremePeople'sCourtconstructedanewsetofguidelinesinJuly1999,basedonthe1995SPCFuturesJudicialGuidelinesandthepeople'scourts'experienceswithfuturescases.
Afterfourstagesofdraftingandtwenty-eightdrafts,Suchlocalseminarswerearesponsetotheincreasingnumberoffuturesdisputesandsoughttoaddressissuesandproblemsthatwerenotfullyaddressedbythe1995SPCFuturesJudicialGuidelines.
85thenewguidelineswerefinalizedinMay2003.
86case,thelosssufferedbytheclientwasmerelycausedbynormalmarketrisk.
SeeThe1995SPCFuturesGuidelines,supranote7,atSec.
7.
80.
SeeThe1995SPCFuturesGuidelines,supranote7,atSecs.
8and9.
81.
SeeThe1995SPCFuturesJudicialGuidelines,supranote7.
82.
The1995SPCFuturesGuidelines,supranote7.
83.
SeeTheSummaryofShanghaiSeminarsonHandlingFuturesTradingDisputes,supranote7,at226–33.
84.
Qihuojiaoyijiufenanlipingxi[COMMENTARYANDANALYSISONFUTURESTRADINGDISPUTECASES]226–33(ZhongFutangetal.
eds.
,Shanghai:XuelinPublishingHouse,1998).
85.
ThedraftingstartedonJuly21,1999.
Thefirststagewastoworkonthenewissuesandquestionsemergedsince1995andtoincorporatethemintothedrafts;startingfromMay2001,thesecondstagewastofocusonthestructure;startingfromearly2002,thethirdstagewastoconsultwiththeCSRC,futuresexchangesandtheAssociationofFuturesBusiness;duringFebruaryandMay2003,thefourthstagewastogothroughseveralroundsofdiscussionsbytheAdjudicationCommitteeoftheSupremePeople'sCourt.
SeeUNDERSTANDING&APPLICATIONOFTHE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURT,supranote75,at18–19.
86.
SeeThe2003SPCFuturesJudicialProvisions,supranote7.
The2003ProvisionsoftheSupremePeople'sCourtonSeveralIssues2009]TheFuturesMarketinChina393ConcerningAdjudicationofCasesofFuturesDisputes(2003SPCFuturesJudicialProvisions)87weretheproductofcarefulworkbasedonconsultationwiththefuturesbusinesssectorandmarketregulators.
88Theyrepresentedaunifiedunderstandingofmajorcivillawissuesconcerningthefuturesmarketasrecognizedbythepeople'scourts,theregulatorsandthefuturesbusiness.
89Comparedwiththe1995SPCFuturesJudicialGuidelines,the2003SPCFuturesJudicialProvisionsprovidedthepeople'scourtswithmorematureandsettledguidelinesforhandlingfuturesdisputes.
Forexample,the2003SPCFuturesJudicialProvisionsrefinedthe1995SPCFuturesJudicialGuidelines'positionregardingtheburdenofproofincaseswhereafuturesbrokerfirmmaynothavecarriedoutaclient'stradinginstructioninthemarket.
90Also,the2003SPCFuturesJudicialProvisionsmadeclearthattheamountofpositionsthatafuturesexchangeorafuturesbrokerfirmclosesoutmustequalthemarginofthatfuturesbrokerfirmorthatofitsclient;thelosscausedbyanexcessiveliquidationwouldbebornebythoseforcingliquidation.
91Suchanequity-basedprincipleregardingexcessiveliquidationwasabsentinthe1995SPCFuturesJudicialGuidelinesandthe1999ProvisionalRegulations.
92The1995SPCFuturesJudicialGuidelinesrecognizedfeaturesoffuturesdisputeswhichweredistinctfromothereconomicdisputes.
Theguidelinessetforthspecificprinciplesbywhichthepeople'scourtsshouldhandlesuchdistinctions,93includingcorrectlyapplyingthelaw,9487.
The2003SPCFuturesJudicialProvisions,supranote7.
88.
IttooknearlyfouryearsfortheSupremePeople'sCourttocompletethedraft,duringwhichtimeitconsultedwiththeCSRC,variousfuturesexchangesandtheAssociationofFuturesBusiness.
SeeTheSummaryofShanghaiSeminarsonHandlingFuturesTradingDisputes,supranote7,at227.
89.
ThiswasdiscussedinaninterviewbyanewsreporterwithJiangBixin,deputypresidentoftheSupremePeople'sCourt,ontheapplicationofthe2003ProvisionsoftheSupremePeople'sCourtonSeveralIssuesConcerningAdjudicationofCasesofFuturesDisputes.
SeeUNDERSTANDING&APPLICATIONOFTHE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURT,supranote75,at19.
90.
SeeWangHuiwenv.
ZhuhaiCityXinguangFuturesBrokerageCo.
,intheGazetteoftheSupremePeople'sCourt,issue1,1999,at29–30(P.
R.
C.
).
Seealsoinfranotes173–78,180–83,186andaccompanyingtext.
91.
Article39the2003SPCFuturesJudicialProvisionsstatesthat"theamountofpositionsthatafuturesexchangeorafuturesbrokerfirmcloseoutshouldbebasicallyequaltotheamountofmarginthatafuturesbrokerfirmoraclienthastoaddup.
Thelosscausedbyanexcessiveliquidationshallbebornebythosewhotaketheforcedliquidationmeasure.
"The2003SPCFuturesJudicialProvisions,supranote7,atArt.
39.
92.
SectionFive(Point6)ofthe1995SPCFuturesJudicialGuidelinesandArticle41ofthe1999ProvisionalRegulationsaddressedtheissueofforcedliquidationbutneitherofthemaddressedtheissueofexcessiveforcedliquidationandconsequentliabilities.
SeeThe1995SPCFuturesJudicialGuidelines,supranote7,atSec.
5,Point6;seealsoThe1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
41.
93.
SeeThe1995SPCFuturesGuidelines,supranote7,atSec.
1.
balancing94.
SectionOne(1)statesthatthepeople'scourtsshouldapplythe1986GeneralPrinciplesofCivilLawasaprimarysourceoflawandalsoactinlightofcentralandlocaladministrativeregulationsandnormativedocuments;wherethedisputesinvolveforeign,HongKongandMacao394BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3betweenrisksandinterests,95balancingbetweenfaultandresponsibilities,96andrespectingtheagreementoftheparties.
97Theseprincipleswerereiteratedinthe2003SPCFuturesJudicialProvisions98andcontinuedtoguidethepeople'scourtshandlingfuturesdisputecases.
99Inessence,theseprincipleswereanextensionandapplicationofthelegalprinciplesstatedinthe1986GPCL,100the1999ContractLaw,101andotherrelevantprimarylaws.
102Inadditiontothejudicialresolutionoffuturesdisputes,non-judicialresolutionbyprofessionalassociationshasplayedanimportantroleinthedevelopmentoffuturestradingregulation.
TheSecuritiesAssociationofChina(SAC),establishedinAugust1991,wasChina'sfirstnational,self-regulatoryprofessionalassociationforthesecuritiesindustry;itmaintainsThegenerallegalprinciplesofthe1986GPCLandthe1999ContractLawappliedtoalltypesofcivilandcommercialactivitiesinChina,whileotherrelevantprimarylawsappliedtotheactivitiesintheirrespectiveareas.
Together,theyremainasourceoflegalprincipleswhichthepeople'scourtsusetoformulatespecificprinciplesapplicabletocertaintypesofdisputes.
element,thepeople'scourtsshouldalsorefertointernationalpractice.
SeeThe1995SPCFuturesJudicialGuidelines,supranote7,atSec.
1(1).
95.
SectionOne(2)statesthat,giventhefactthatfuturestradinginvolvespeculationandhighrisks,thepeople'scourtsshouldprotectlawfulinterestsoftradingpartiesontheonehand,anddeterminecorrectlytheriskstheparitiesshouldundertake.
SeeThe1995SPCFuturesJudicialGuidelines,supranote7,atSec.
1(2).
96.
SectionOne(3)statesthatthepeople'scourtshouldanalysiscarefullywhetherpartiesinadisputeareatfault,whatisthenatureofthefault,howseriousisthefault,andwhetherthereisacasuallinkbetweenthefaultandlosses,andonthebasisofthesefindingdeterminetheircorrespondingresponsibilities.
SeeThe1995SPCFuturesJudicialGuidelines,supranote7,atSec.
1(3).
97.
SectionOne(4)statesthattheagreementofthepartiesshouldbetreatedasthebasisfordealingwiththedisputesbetweenthepartiesaslongastheagreementhasnoviolationoflaw,regulationsandcustomoffuturestrading.
SeeThe1995SPCFuturesJudicialGuidelines,supranote7,atSec.
1(4).
98.
SeeThe2003SPCFuturesJudicialProvisions,supranote7,atArts.
1–3.
99.
SeeThe2003SPCFuturesJudicialProvisions,supranote7,atArts.
1–3(Art.
1.
"Whenadjudicatingfuturesdisputes,thepeople'scourtsshallactinaccordancewiththelawtoprotectthelegalrightsandinterestsoftheparties,determinecorrectlytheriskandresponsibilitieseachpartybears,andupholdtheorderoffuturesmarkets.
Art.
2.
Whenadjudicatingfuturescontractdisputes,thepeople'scourtsshalldeterminethetheliabilityofthepartywhobreachesthecontractinstrictaccordancewiththeparties'contractandagreementstherein,solongastheagreementsdonotviolatestatutorylaw,normandatoryadministrativeandregulatoryprovisions.
Art.
3.
Whenadjudicatingfuturesinfringementofrightdisputesandinvalidfuturescontractdisputes,thepeople'scourtsshalldeterminethecivilliabilitiesofthepartyatfaultafteranevaluationoftherelativefaultsoftheparties,thecharacteristicsofthefaults,themagnitudeofthefaults,andthecausalrelationshipbetweenthefaultsandlosssuffered.
").
Id.
100.
See1986GPCL,supranote12.
101.
Hetongfa[ContractLaw],(adoptedbytheNat'lPeople'sCong.
,Mar.
15,1999,effectiveOct.
1,1999),availableathttp://www.
gov.
cn/banshi/2005-07/11/content_13695.
htm(lastvisitedMar.
20,2009)(P.
R.
C.
)(replacingthepreviousthreeseparatecontractlaws,specifically,the1981EconomicContractLaw,1985EconomicContractLawInvolvingForeignParties,&1987TechnologyContractLaw).
102.
See,e.
g.
,SecuritiesLaw,supranote59.
2009]TheFuturesMarketinChina395branchesinlocalregionsforsecuritiesfirmsanddealers.
103Similarly,theChinaFuturesAssociation(CFA),establishedinDecember2000,isChina'snationalfuturesself-regulatoryassociation.
104Whenitwasformed,theSACnoteditsfunctionsandresponsibilitieswouldaccordwithrelevantprovisionsoftheSecuritiesLaw.
105Oneofthesefunctionsandresponsibilitiesistomediatesecuritiesdisputesbetweenmembers,andbetweenmembersandtheirclients.
106TheCFAhasasimilarrole:oneofitsfunctionsandresponsibilitiesistomediatedisputesinvolvingfuturesbusinessamongstmembers,betweenmembersandtheirclients,andbetweencertifiedbrokersandtheirclients.
107Currently,disputesamongstmembersorbetweenmembersandtheirrespectiveclientsmaybesubmittedtotheCFAformediation.
108Arbitrationalsoplaysanimportantroleinfuturestradingregulation.
In2004,theLegalAffairOfficeoftheStateCouncilandtheCSRCjointlyissuedanoticeonthearbitrationofsecuritiesandfuturescontractualdisputes(SecuritiesandFuturesDisputesArbitrationNotice).
109103.
FordiscussionabouttheSAC,seeSECURITIESREGULATIONINCHINAsupranote68,at69–70.
104.
TheworktoestablishtheChinaFuturesAssociationstartedin1995.
Althoughthefounderswentthroughalltheformalitiesandproceduresforestablishment,theworkwasstoppedbecauseofthegovernmentcrackdowndevelopmentofthefuturesmarketatthattime.
BytheendofSeptember2003,theAssociationhad189memberslocatedin32provincesandcities,includingthreeCommodityFuturesExchangesasspecialmembers.
SeeChinaFuturesAssociationHomePage,http://www.
cfachina.
org(follow"AbouttheAssociation"("Xiehuijieshao")hyperlink)(lastvisitedMay18,2009);seealsoSECURITIESREGULATIONINCHINAsupranote68,at213n.
110.
105.
SeeZhongguozhengquanyexiehuizhangcheng[ArticlesofAssociationoftheSec.
Ass'nofChina],Art.
5,(adoptedJan.
22,2007),availableathttp://www.
sac.
net.
cn/newen/home/info_detail.
jspcate_id=1185524449100(P.
R.
C.
)[hereinafterArticlesofAssociationoftheSec.
Ass'nofChina].
106.
SeeArticlesofAssociationoftheSec.
Ass'nofChina,supranote105,atArt.
5.
107.
SeeZhongguoqihuoyexiehuizhangcheng[ArticlesofAssociationoftheChinaFuturesAss'n],Art.
10,(adoptedJune2,2006),availableathttp://www.
cfachina.
org/index.
phpid=160(lastvisitedApr.
24,2009)(P.
R.
C.
).
108.
SeeZhongguoqihuoyexiehuihuiyuanguanlizanxingbanfa[ProvisionalMeasuresontheAdmin.
oftheMembersoftheChinaFuturesAss'n],Art.
16,(promulgatedDec.
29,2000),availableathttp://www.
csrc.
gov.
cn/n575458/n4239016/n6634558/n9768113/10011976(lastvisitedApr.
24,2009)(P.
R.
C.
).
109.
SeeGuanyuyifazuohaozhengquan,qihuohetongjiufenzhongcaigongzuodetongzhi[TheNoticeonToDoWellinAccordancewithLawtheWorkofArbitrationofSec.
&FuturesContractDisputes](promulgatedbytheLegislativeAffairsOfficeoftheStateCouncilandtheChinaSec.
RegulatoryComm'n,Jan.
18,2004),availableathttp://www.
csrc.
gov.
cn/n575458/n4239016/n6634558/n9768098/n9768420/9850707.
html(lastvisitedApr.
24,2009)[hereinafterTheNoticeonToDoWellinAccordancewithLawtheWorkofArbitrationofSec.
&FuturesContractDisputes].
TheSecuritiesandFuturesDisputesArbitrationNoticepromotesarbitrationinsecuritiescontractualdisputeresolutionwithanaimtomakefulluseoftheadvantagesofarbitration(expediency,flexibility,lowcostand396BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3confidentiality).
110Thetwoissuesofgreatestimportanceinthenoticearethescopeofarbitrationinsecuritiesandfuturescontractualdisputes,andtheuseofanarbitrationclauseinsecuritiesandfuturescontracts.
111Itstipulatesawiderangeofsecuritiescontractualdisputesthatfallintothescopeofarbitration.
112Furthermore,securitiesandfuturesmodelcontractsarerequiredtohaveanarbitrationclauseandpartieshavetherighttochooseanarbitrationorganization.
113IV.
DEFININGFUTURESCONTRACTSAcompleteunderstandingofthelegalaspectsofthecommodityandfinancialfuturestradingmarketinChinarequiresdueconsiderationofthetypesoffuturesexchanges,futurescontractsandfuturesdisputesthatexistinChina,andthecorrespondingChineseterminology.
Theenlargedscopeoffuturescontractsunderthe2007Regulationsindicatesthatthetypesoffuturescontractsandproductspermittedareincreasinglycomprehensive,asChina'scommodityandfinancialfuturesmarketdevelopsandpreviousrestrictiveregulationsarelifted.
InChineseterminology,"futures"(qihuo)aredividedinto"commodityfutures"(shangpinqihuo)and"financialfutures"(jinrongqihuo).
IntheearlyyearsofChina'sfuturesmarket,whenmanyfuturesexchangesexisted,thereweregeneraltypesofcommodityfuturesexchanges(shangpinqihuojiaoyisuo)andspecialtypesofcommodityfuturesexchanges,suchasa110.
SeeTheNoticeonToDoWellinAccordancewithLawtheWorkofArbitrationofSec.
&FuturesContractDisputes,supranote109(citingsuchfeaturesofarbitrationasspecialadvantagesintheresolutionofsecuritiescontractualdisputesthrougharbitration).
111.
SeeTheNoticeonToDoWellinAccordancewithLawtheWorkofArbitrationofSec.
&FuturesContractDisputes,supranote109,atPoints1&2.
Otherissuesaddressedincludetheappointmentofsecuritiesandfuturesprofessionalsasarbitrators,thecarryingoutofthearbitrationofsecuritiesandfuturescontractualdisputesinaccordanceoflaw,andthesupervisionandguidanceofthearbitrationofsecuritiesandfuturescontractualdisputes.
Seeid.
atPoints3,4&5.
112.
Thosedisputesinclude(1)disputesbetweensecuritiesissuersandsecuritiescompaniesorbetweensecuritiescompaniesarisingfromsecuritiesissuingandunderwriting,(2)disputesbetweensecuritiescompanies,futuresbrokerfirms,securitiesinvestmentconsultantorganizations,futuresinvestmentconsultantorganizationsandtheirclientsarisingfromprovidingofservices,(3)disputesbetweenfundpromoters,fundmanagementcompaniesandfundcustodianorganizationsarisingfromfundissuing,managementandcustody,(4)disputesbetweenaccountantfirms,lawfirms,assetandcreditappraisalorganizationsandsecuritiesissuers,listedcompaniesarisingfromprovidingofservices,(5)disputesarisingfromchangeofshareholdinginlistedcompanies,securitiescompanies,futuresbrokerfirmsandfundmanagementcompanies,(6)disputesbetweensecuritiescompanies,securitiesinvestmentconsultantorganizations,futuresinvestmentconsultantorganizations,futuresbrokerfirms,listedcompanies,fundmanagementcompanies,registrationandclearanceorganizationandparticipantsofsecuritiesandfuturesmarketarisingfromothercontractsrelatedtosecuritiesandfuturestrading.
SeeTheNoticeonToDoWellinAccordancewithLawtheWorkofArbitrationofSec.
&FuturesContractDisputes,supranote109,atPoint1.
113.
TheSecuritiesandFuturesDisputesArbitrationCircularsetJune30,2004asadeadlineforsecuritiesandfuturesmodelcontractstohaveanarbitrationclause.
SeeTheNoticeonToDoWellinAccordancewithLawtheWorkofArbitrationofSec.
&FuturesContractDisputes,supranote109,atPoint2.
2009]TheFuturesMarketinChina397metalexchange(jinshujiaoyisuo)andagrain&oilexchange(liangyoushangpinjiaoyisuo).
114Beforethegovernmentsuspendedtradingoffinancialfuturesinthemiddleofthe1990s,thereweregovernmentbondfutures(guozhaiqihuo),foreignexchangefutures(waihuiqihuo),andforeignexchangecashdeposittransactions(waihuianjinjiaoyi).
115Intheearly1990s,ifaChinesefuturesbrokeragefirmoperatedjointlywithaforeignfuturesbrokeroutsideChina,shareindexfutures(guzhiqihuo)andotherfinancialfuturesproductswerealsoavailabletoinvestors.
116Futurestradingdisputesalsoincludedsub-categories.
Futuresdisputesweresometimesclassifiedintotwogeneralgroups:thoseconnectedwiththetradingoffuturescontracts(heyuejiaoyijiufen)andthoseconnectedwiththesettlementofphysicalcommodities(shiwujiaogejiufen).
117Inthe1999ProvisionalRegulations,a"futurescontract"(qihuoheyue)wasdefinedasastandardcontractformulatedbyfuturesexchangesthatstipulatesfordeliveriesofcommoditiesofacertainquantityandqualityatacertaintimeandplaceinthefuture.
Thisclassificationreflecteddifferentstagesoffuturestrading,eachwithdifferentlegalissues.
118Thisdefinitionhasessentiallyremainedthesameinthe2007Regulations,119114.
Forexample,theShanghaiMetalExchangeandtheShanghaiGrain&OilExchange.
115.
Thegovernmentbondfuturesmarketemergedinearly1993withtradingontheShanghaiStockExchange,andlater,insomecommodityandsecuritiesexchangesinBeijingandWuhan.
InMay1995,thetradingofgovernmentbondfutureswassuspendedbythegovernment.
SeeTheUrgentNoticeonSuspensionofTrialsofGov'tBondFuturesTrading,supranote30.
Transactionsinvolvingforeignexchangefuturesandforeignexchangecashdeposits,whichappearedinearly1990s,werebannedbythegovernmentinDecember1994.
SeeTheNoticeonRelevantIssuesaboutCancellationbyFuturesBrokerFirmsofOffshoreFuturesBus.
,supranote31.
116.
Forexample,inQingyuanCityOverseasChineseCommodityCo.
v.
QingyuanCityTongyeInt'lFuturesTradingFirm,variouscommodityandfinancialfuturesproductsontheChicagoMercantileExchange,includingStandard&Poor's500Indexfutures,wereavailabletotheplaintiffinvestors.
SeeEXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW,supranote141,at241(discussingQingyuanCityOverseasChineseCommodityCo.
v.
QingyuanCityTongyeInt'lFuturesTradingFirm);seealsodiscussioninfraPartIX.
117.
SeeUNDERSTANDING&APPLICATIONOFTHE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURT,supranote75,at321.
118.
Article70(2)statesthat"'futurescontract'referstoastandardcontractformulateduniformlybyfuturesexchangeswhichstipulatesfordeliveryofacommodityofacertainquantityandqualityatacertaintimeandplaceinthefuture.
"The1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
70(2).
119.
Article85(1)statesthat"Futurescontract(qihuoheyue)referstoastandardcontractuniformlyformulatedbyfuturesexchangewhichstipulatesfordeliveriesofathingofacertainquantityatacertaintimeandplaceinthefuture.
Accordingtothedifferentthingsinvolvedinacontract,futurescontractisdividedintocommodityfuturescontractandfinancialfuturescontract.
Theobjectsofcommodityfuturescontractsincludeagricultureproducts,industrialproducts,energyandothercommoditiesandassociatedindexproducts;theobjectsoffinancialfuturescontractsincludefinancialproductslikesecurities,interestrate,exchangerateandsoonandassociatedindexproducts.
"SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
85(1).
althoughthescopeoffuturescontractshasbeenenlargedtoaddfinancialfuturescontracts(jinrongqihuo398BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3heyue).
120ThisexpandeddefinitionwasaresultoftheestablishmentoftheCFFEXandtheintroductionoffinancialfuturesproductsin2006.
121Inaddition,an"optioncontract"(qiquanheyue)wasintroducedinthe2007Regulations.
122ThisadditionhelpedincreaseliquidityandstabilityofChina'sfuturesmarketbyprovidingameansforriskmanagementoffuturestrading.
123V.
ENGAGINGINFUTURESTRADINGThe2007RegulationstherebyfurtherpavedaregulatorywayforthefuturedevelopmentofChina'sfinancialfuturesmarketthroughtheclarificationandstandardizationofindustryterminology.
Engaginginfuturestradinginvolvestwoissues:first,wherethefuturestradingshouldbeconducted,andsecond,whoshouldbeallowedtoengageinfuturestradingandinwhatmanner.
The1999ProvisionalRegulationsrequiredthatfuturestradingbeconductedinafuturesexchange,theestablishmentofwhichrequiredapprovalbytheCSRC.
124InShanghaiForeignTradeCompanyv.
ShanghaiChemicalsCommodityExchange,Beforetheseregulations,futuresexchangeswereestablisheduponapprovalbylocalgovernment.
Becauseafuturesexchangemaybeeitheraplaintifforadefendantinadispute,andbecausetheearlyfuturesmarketwasamixoffuturesexchangeswithandwithoutproperapprovals,thepeople'scourtsexaminedtheproprietyoflocalgovernmentapprovalbeforeconsideringotherissuesofthedispute.
Asathresholdmatter,thepeople'scourtsassessedwhetherthefuturesexchangewasestablishedandfunctionedinaccordancewithandundertheapprovalofregulators.
125120.
The2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
85(1).
121.
The2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
85(1).
122.
Article85(2)statesthat"Optioncontract(qiquanheyue)referstoastandardcontractuniformlyformulatedbyfuturesexchangewhichstipulatesthatbuyerhasrighttopurchaseorsellanobjectagreedupon(includingfuturescontracts)atacertaintimeandaspecifiedpriceinthefutures.
"SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,at85(2).
123.
Foradiscussionontheoptioncontract(qiquanheyue)anditsfunctioninriskmanagement,seeGaoYongshen&QuanLiping,Qiquanheyuejiqizaifengxianguanlizhongdeyingyong[OptionContractanditsApplicationinRiskManagement],at17–19,JiangsuCommercialForum,JiangsuShanglun,Issue11,1998,availableathttp://lsk.
cnki.
net/kns50/detail.
aspxQueryID=15&CurRec=6.
124.
The1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
4,Art.
6.
125.
SeeShanghaiForeignTradeCo.
v.
ShanghaiChem.
CommodityExch.
,inRenminfayuananlixuanJingbianben[SUPREMEPEOPLE'SCOURT&CHINARESEARCHINST.
OFAPPLIEDSCIENCEOFLAW,ANESSENTIALSELECTIONOFCASESOFTHEPEOPLE'SCOURTS]763–69(Beijing:XinhuaPublishingHouse,vol.
1,2001).
thedefendantShanghaiChemicalCommodityExchangewasastate-ownedenterpriseestablisheduponapprovaloftheAdministrativeBureauofIndustryandCommerceofShanghaiMunicipality,whoseservicesweretoprovideforachemicalcommoditytradingplaceandfacilitiestodealwithclearanceandtransfers,andto2009]TheFuturesMarketinChina399provideotherservicesrelatingtothechemicalcommoditytrading.
126BecauseoneoftheAdministrativeBureauofIndustryandCommerceofShanghaiMuncipality'sfunctionswastoapproveandregisterbusinessentities,theShanghaiChangningDistrictPeople'sCourtwassatisfiedthatthedefendanthadbeenestablishedundertheappropriategovernmentalapprovalsandregistrationproceduresapplicableatthattime.
127Likewise,inHainanZhongqingJiyeDevelopmentCentrev.
SichuanPingyuanIndustrialDevelopmentCo.
,128theHainanZhongshangFuturesExchange,whichprovidedmemberswithatradingplacefornaturalrubberandotherfuturescontracts,wasestablisheduponapprovaloftheCSRCandissuanceofanenterpriselegalpersonbusinesslicensebytheAdministrationforIndustryandCommerce.
129There,theSichuanHighPeople'sCourtwassatisfiedthattheexchangehadobtainedproperapprovalandbusinesslicense.
130Thepeople'scourtsalsoexaminedfuturesbrokerfirmstodeterminewhethertheywereauthorizeddealers.
Accordingtothe1999ProvisionalRegulations,afuturesbrokerfirmmustbecomeamemberofafuturesexchangetotradefuturescontractsonbehalfofitsclientsThepeople'scourtswerecompelledtoscrutinizethestatusofChina'searlyfuturesexchangesduetothedifferentkindsoflocalfuturesexchangeswhichhadcomeintooperationlikemushroomsduringthehecticexpansionofChina'sfuturesmarket;however,suchsharpscrutinybecamelessimportantafter1998,whenonlythreefuturesexchangesremainednationwide.
131andmustbeapprovedbytheCSRCandregisteredwiththeAdministrationforIndustryandCommerce.
132Financialinstitutions,stateorganizations,otherstateinstitutionsandindividualsarenotallowedtotradefuturescontractsotherwise,andconversely,afuturesbrokerfirmmaynotacceptfuturescontractsandactforthem.
133InZhongyuanGrain&OilTradingCo.
v.
ZhumadianRegionYinfengCo.
,Courtspresentedwiththeissueoffuturestradingbynon-membersofafuturesexchangehaveenforcedsuchrequirements.
134126.
SeeShanghaiForeignTradeCo.
,at765.
127.
Seeid.
128.
SeeHainanZhongqingJiyeDev.
Ctr.
v.
SichuanPingyuanIndus.
Dev.
Co.
,intheGazetteoftheSupremePeople'sCourt,issue4,2005,at25–30(P.
R.
C.
).
129.
SeeHainanZhongqingJiyeDev.
Ctr.
,at27.
130.
Seeid.
at27.
131.
The1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
28.
132.
The1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
22.
133.
The1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
30.
Anunprofitableenterprise,forinstance,isnotallowedtoinvolveinfuturestrading.
Seeid.
thetwodefendantsactingasbrokersforfuturestradingwerenot134.
SeeZhongyuanGrain&OilTradingCo.
v.
ZhumadianRegionYinfengCo.
inRenminfayuananlixuanJingbianben[SUPREMEPEOPLE'SCOURT&CHINARESEARCHINST.
OFAPPLIED400BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3membersoftheZhengzhouCityGrainCommodityExchange,norhadtheybeenapprovedbytheCSRCandregisteredwiththeAdministrationforIndustryandCommercetoengageinfuturesbusiness.
TheCourtalsofoundthattheplaintiffwasaloss-makingenterpriseatthetimeitentrustedthedefendantstotradefuturescontracts.
135Governmentregulatorypolicyprohibitedaloss-makingenterprisefrombeinginvolvedinspeculativefuturestrading,136sotheCourtannulledthebrokerageagreementsignedbetweentheparties.
137InSuzhouForeignTradeCommodityHoldingCo.
v.
ZhejiangHuanyaIndustrialCo.
,138theSupremePeople'sCourtaffirmedthatthetwofuturestradingcontractssignedbetweentheplaintiffanddefendantwereinvalidbecausetheplaintifflackedauthorizationtoengageinthefuturesbrokeragebusiness.
TheplaintiffwasamemberoftheSuzhouCommodityExchangeandwasapprovedtoengageinfuturestrading,butonlyontheplaintiff'sownaccountandnotasabrokertradingonbehalfofothers.
139Furthermore,thecontractswereformedwiththeillegalintenttojointlymanipulatemarketprices.
140Animportantquestionpresentinthesecasesiswhoshouldbeartheclients'losses.
Oneconsiderationisthatthebrokerfirmshouldbeartheburden,when,undertheregulations,theiractsareinvalid;however,thisreasoningwasnotconsistentlysupportedpriortothe1995SPCFuturesJudicialGuidelines.
Inthemajorityofcases,thepeople'scourtsruledinfavoroftheclients,requiringthebrokerfirmsreturnlostdepositstotheclients.
However,thisapproachwascriticizedbycommentatorswhoarguedthatthepeople'scourtsmisunderstoodthelegalrelationshipbetweenthebrokeragefirmanditsclientsinfuturestrading.
Thisadditionalfindingfurtheredthecourt'sdecisiontoannulthecontracts.
141Commentatorsarguedthatsucharelationshipwasneitheranordinaryagencyrelationship(dailiguanxi),noranintermediationrelationship(jujianguanxi);rather,itwasacommissionagencyrelationship(hangjiguanxi).
142SCIENCEOFLAW,ANESSENTIALSELECTIONOFCASESOFTHEPEOPLE'SCOURTS]769–77(Beijing:XinhuaPublishingHouse,vol.
1,2001).
135.
ZhongyuanGrain&OilTradingCo.
,at769–77.
136.
SeeTheNoticeoftheGen.
OfficeoftheSt.
CouncilSeekingInstructionsonSeveralOpinionsonFirmlyStoppingBlindDev.
oftheFuturesMkt.
,supranote4,atPoint4.
137.
SeeZhongyuanGrain&OilTradingCo.
,at771.
138.
SeeUNDERSTANDING&APPLICATIONOFTHE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURT,supranote75,at263–95.
139.
Seeid.
at263–95.
140.
Seeid.
at273,288.
141.
SeeJinrongfadianxinganlijiexi,diyiji[EXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW]247–48(WuZhipan&TangJiemangetal.
eds.
,ChinaFinancePublishingHouseVol.
1,2000)[hereinafterEXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW].
142.
Id.
at247.
Underacommissionagencyrelationship,thebasicobligationofafuturesbrokerfirmwas2009]TheFuturesMarketinChina401merelytoexecutethetradinginstructionsofclientstruthfully,andthereforethebrokerfirmwouldnotbearlegalresponsibilitiesfortheconsequencesofnormaltrading;143ifafuturesbrokerfirm'sactionswererenderedinvalidbecausethefirmlackedthenecessaryqualification,thenonlythebrokerfirm'scommissionswouldbeconsidereddamages.
144The1995SPCFuturesJudicialGuidelinesaddressedtheapparentambiguity.
First,thepeople'scourtshouldestablishwhetherthereisacausallinkbetweenthelossessufferedbytheclientsandtheinvalidactsofbrokerfirms.
145Ifabrokerfirmisnotqualifiedtoengageinfuturestrading,butactsforitsclients,thenthebrokerfirmshouldnotbeliableforlossesifevidenceprovesthatthebrokerfirmcarriedoutthetradingaccordingtotheinstructionsoftheclient;146thelosssufferedbytheclientunderthosecircumstanceswillbeduetonormalmarketrisks.
147Althoughabrokerfirmwillhavecarriedoutinvalidtradingactivities,itshouldnotbeartheclient'slossifthereisnodirectlinkbetweentheinvalidtradingandtheloss.
Thisreasoningresonateswithinthemorerecent2003SPCFuturesJudicialProvisions.
148ZhongyuanGrain&OilTradingCo.
v.
ZhumadianRegionYinfengCo.
,149affirmedthatafuturesbrokerfirmwillnotbeliableforthelosssufferedbyaclientifthereisnodirectlinkbetweentheinvalidtradingandtheloss.
Inthatcase,theCourtannulledthebrokerageagreementsignedbetweenthepartiesbecausethetwodefendantswerenotqualifiedtoengageinfuturestrading,andadditionally,theplaintiffwasaloss-makingenterpriseandwasprohibitedfromtradingcommodityfuturescontracts.
150TheCourtdistinguishedbetweenlossessufferedasaresultoftradingcarriedoutinaccordancewiththeplaintiff'sinstructionsandlossessufferedasaresultoftradingcarriedoutwithouttheplaintiff'sinstructions.
151143.
Id.
144.
However,itwasalsosubmittedthatthefirm'scommissionsshouldbeconfiscatedratherthanreturnedtotheclientiftheclient'sinvolvementinfuturestradingwasillegal.
Id.
at248.
145.
The1995SPCFuturesJudicialGuidelines,supranote7,atSec.
7.
146.
The1995SPCFuturesJudicialGuidelines,supranote7,atSec.
7.
147.
The1995SPCFuturesJudicialGuidelines,supranote7,atSec.
7.
148.
Article14statesthat"whereaclient'seconomiclossiscausedbyinvalidfuturescontracts,theresponsibilitiesshouldbedeterminedandborneaccordingtothecausallinkbetweentheinvalidactsandtheloss.
Ifoneparty'slossiscausedbytheactoftheotherparty,theotherpartyshouldcompensatetheloss;ifbothpartiesareatfaulteachofthemshouldbearcorrespondingcivilresponsibilityaccordingtotheportionofthefault.
"The2003SPCFuturesJudicialGuidelines,supranote7,atArt.
14.
149.
SeeZhongyuanGrain&OilTradingCo.
v.
ZhumadianRegionYinfengCo.
,inRenminfayuananlixuanJingbianben[SUPREMEPEOPLE'SCOURT&CHINARESEARCHINST.
OFAPPLIEDSCIENCEOFLAW,ANESSENTIALSELECTIONOFCASESOFTHEPEOPLE'SCOURTS](Beijing:XinhuaPublishingHouse,vol.
1,2001).
150.
SeeZhongyuanGrain&OilTradingCo.
,at771.
151.
Id.
at771–72.
TheCourtrejectedtheplaintiff'sclaimbutheldthedefendantliableforthe402BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3lossesrelatedtotradingthatwasoutsideoftheplaintiff'sinstructions.
152TherulingwasupheldonappealintheHenanHighPeople'sCourt.
153Inaddition,ifafuturesbrokerfirmoverstepsitsapprovedbusinessscope(jingyingfanwei),anyrelevantcontractsaredeemednullandvoid.
Forexample,inLiangJintaov.
BaishigaoFuturesConsultantServ.
Co.
,154defendantBaishigaowasajointventurewhoseregisteredbusinessscopeincludedconsulting,trainingandservicesrelatingtocommodityfuturestrading.
BaishigaosignedanagreementwithplaintiffLiangJintao,stipulatingthatLiangJintaowouldopenanaccountatBaishigaoandthatBaishigaowouldactasLiangJintao'sbrokerfortradingcommodityfutures.
155LiangJintaodeposited250,000yuanintotheaccount,butafterexperiencingaloss,LiangJintaodiscoveredthatBaishigaohadusedtheaccountfundsforfuturestradingwithouthisinstructions.
156TheAdministrationforIndustryandCommerceofShenzhenCityissuedanoticetoBaishigaorequiringittoceasetradingcommodityfutures,anactivitynotincludedinBaishigao'sregisteredbusinessscope.
157Upondemand,Baishiagoreturnedonly50,000yuantoLiangJintao,whodecidedtosueintheLuohuDistrictCourtofShenzhenCity.
158TheCourtheldtheparties'agreementnullandvoidonthegroundsthatthedefendanthadoversteppeditsbusinessscope.
159Becausethedefendanthadactedwithouttheplaintiff'sinstructions,theCourtheldthatthedefendantmustreturntheremainingbalanceof200,000yuantotheplaintiff,160inaccordancewithArticle7andArticle16oftheEconomicContractLaw.
161152.
Id.
at772.
153.
Id.
at774.
ThedefendantappealedthecaseonthegroundoftheirargumentthattheyhadactedfortheplaintiffuntilMay26,1995,notMarch23,1995,astheplaintiffsubmitted.
AsubstantialpartofthelossessufferedbytheplaintiffwascausedbythetransactionscarriedoutbythedefendantinAprilandMay1995.
TheplaintiffsubmittedthattheyhadnotgiventhedefendantanyfurtherinstructionsafterMay23,1995.
TheCourtoffirstinstanceruledthatMarch23,1995wasthelastdaytheplaintiffhadinstructedthedefendant;thetransactionsinAprilandMaywerecarriedoutbythedefendantwithouttheplaintiff'sinstructions;andtheCourtheldthedefendantliableforthelossescausedbythetransactionsinAprilandMay.
TheHenanHighPeople'sCourtupheldtherulingoftheCourtoffirstinstance,althoughtheHenanHighPeople'sCourtdeterminedthattheplaintiffhadgiventhedefendantinstructionsuntilMarch31,1995.
Seeid.
154.
SeeLiangJintaov.
BaishigaoFuturesConsultantServ.
Co.
,inGuangdongshenpananli[ADJUDICATEDCASESOFGUANGDONG]346–49(GuangdongHighPeople'sCt.
ResearchDept.
eds.
,GuangdongPeople'sPublishingHouse,1997).
155.
Id.
at346.
156.
Id.
157.
Id.
at347.
158.
Id.
159.
Id.
160.
LiangJintao,at347.
161.
Article7(1)and(2)ofthe1981EconomicContractLaw,asamendedin1993,statesthat"thefollowingeconomiccontractsshallbevoid:(1)contractsviolatingthelaworstatepoliciesandplans;(2)contractssignedbymeansoffraud,coercionorsimilarmeans.
"Article16statesthat"afteraneconomiccontracthasbeendeterminedtobevoid,thepropertythatthepartyhasobtainedinaccordancewiththecontractshallbereturnedtotheotherparty.
Thepartywhoisat2009]TheFuturesMarketinChina403Solongasafuturesbrokerfirmstrictlycarriedoutitsclient'stradinginstructions,thefirmwouldnotbeheldliableforanylosssufferedasaresultofsuchatradinginstruction.
162Inthiscase,however,thedefendantwascorrectlyheldliableforreturningthelostdeposittotheplaintiffbecausethedefendanttradedwithoutplaintiff'sinstructionsandthusdirectlycausedthelosses.
163TheShenzhenIntermediatePeople'sCourtaffirmedthereasoningwhichplacedthelegalconsequencesonthedefendantthathadcarriedoutfuturestradingwithouttheplaintiff'sinstructions.
164Theregulationoffuturesexchangesandfuturesbrokerfirmshasmovedtowardsamorebalancedregulationandsupervision,amarkedimprovementsince1999.
Thecurrentregulationsforestablishingandoperatingfuturesexchangesrestatethebasicregulatorypositionsofthe1999ProvisionalRegulations.
Boththe2007Regulationsandthe2007MeasuresontheAdministrationofFuturesExchangerequireCRSCapprovalinordertoestablishafuturesexchange.
165Thefuturesexchangemustalsoindicatewhetheritisa"commodityexchange"or"futuresexchange"initsname,andnootherorganizationorindividualmayusethesamename.
166faultshallcompensateforthelosstheotherpartyhassufferedasaresult;ifbothpartiesareatfault,eachofthemshallbearcorrespondingresponsibilities.
.
Inthecaseofaneconomiccontractwhichviolatestheinterestofthestateandthepublicinterest,ifbothpartieshaveactedwilfully,thepropertythattheyhaveobtainedorareduetoobtainbymutualagreementshallberecoveredandturnedovertotheStateTreasury.
Ifonlyonepartyhasactedwilfully,thewilfulpartyshallrestoretotheotherpartythepropertyithasobtainedfromthelatter;thepartythatpartythathasnotactedwilfullyshallturnovertotheStateTreasuryanypropertyithasobtainedfromtheotherpartyorisduetoobtainbymutualagreement.
"Zhonghuarenmingongheguojingjihetongfa[EconomicContractLaw]Art.
7(1),(2),(promulgatedbyStandingComm.
Nat'lPeople'sCong.
,Dec.
13,1981,effectiveJuly1,1982,revisedSept.
2,1993),(repealedandreplacedbyZhonghuarenmingongheguohetongfa[ContractLaw](promulgatedbyNat'lPeople'sCong.
,Mar.
15,1999,effectiveOct.
1,1999)),availableathttp://www.
court.
gov.
cn/lawdata/law/civil/200807310033.
htm(lastvisitedMay18,2009),(P.
R.
C.
)[hereinafter1981EconomicContractLaw].
162.
SeeLiangJintaov.
BaishigaoFuturesConsultantServ.
Co.
,inGuangdongshenpananli[ADJUDICATEDCASESOFGUANGDONG]349(GuangdongHighPeople'sCt.
ResearchDept.
eds.
,GuangdongPeople'sPublishingHouse,1997).
163.
SeeLiangJintao,at349.
164.
Seeid.
at348.
Thedefendantappealedthecase,arguingthattherewasanerrorinthefindingofthefactsbytheCourtoffirstinstance;theissueofthefirm'soverstepofitsbusinessscope,uponwhichtheCourtmadethejudgment,wasstillpendingareviewdecisionafterthedefendanthadappliedforareviewtotheGuangdongAdministrationofIndustryandCommerce;andthejudgementwasmadewithoutsufficientevidence.
.
TheShenzhenIntermediatePeople'sCourtrejectedthedefendant'sappealandruledthatthefactsofthecasewereclearlyjudgedbytheCourtoffirstinstance.
TheShenzhenIntermediatePeople'sCourtalsosaidthatthedefendantshouldbearthelegalconsequencesforthefuturestradingcarriedoutbytheindividualbrokerofthedefendantwithouttheplaintiff'sinstructions.
Seeid.
165.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
6;The2007MeasuresontheAdmin.
ofFuturesExch.
,supranote38,atArt.
6.
166.
The2007MeasuresontheAdmin.
ofFuturesExch.
,supranote38,atArt.
7.
Further,anyorganizationorindividualthatillegally404BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3establishesafuturesexchangeissubjecttosanction.
167Ontheotherhand,the2007Regulationsareflexiblebyallowingfuturestradinginothertradingplacesapprovedbyfuturesregulators,inadditiontoformalfuturesexchangeswherefuturestradingisnormallyconducted.
168Inthiscontext,the2007Regulationsemphasizeaprohibitionontradingoutsideanauthorizedfuturestradingplace.
169The2007Regulationsalsomadenoticeablechangesregardingtheregulationoffuturescompaniesandtheirbusiness.
The2007Regulationscalledforalicensingsystemthatrecognizedwhichfuturescompaniesmayengageinawiderrangeoffuturesbrokeragebusiness,includingcommodityfutures,financialfutures,futuresconsultancybusiness,andoffshorefutures.
170Underthe2007Regulations,theminimumamountofregisteredcapitalrequiredtoestablishafuturescompanyisthirtymillionyuan,whichisthesamerequirementunderthe1999ProvisionalRegulations;however,the2007Regulationsgivefuturesregulatorsdiscretiontoraisetheminimumregisteredcapitalbasedonprudentialprinciplesandaccordingtotherisklevelsofthespecificfuturesbusiness.
171Otherareasofimprovementarethecorporategovernanceoffuturescompaniesandtheprotectionofclients'money.
172VI.
CARRYINGOUTTHECLIENT'SINSTRUCTIONSANDTHEBURDENOFPROOFTheregulationoffuturescompaniesisnowclearerandinbettershape:itbalancesthefutureregulators'needsforpropercontrolofthemarketwiththefuturescompanies'needsforgrowthandengagementinawiderrangeoffuturesbusiness.
Afuturesbrokerfirms'faithfulnessincarryingoutaclient'sinstructionshashistoricallybeenamatterofsignificantdispute.
DuringtheearlyyearsofChina'sfuturesmarket,clientsclaimedlossesonthegroundsthatthefuturesbrokerfirmfailedtocarryouttheirinstructionsgenuinely.
AprimeexampleisWangHuiwenv.
ZhuhaiCityXinguangFutures167.
AccordingtoArticle78,suchafuturesexchangewillbecloseddown;illegalgainswillbeconfiscatedandafinewillbepaidequivalenttoonetofivetimesoftheillegalgains;thosewhohavedirectresponsibilitieswillbesubjecttoawarningandafinebetween10,000to100,000yuan.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
78.
168.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
4,88.
169.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
4.
170.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
17.
171.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
16.
172.
Chapter3(arts.
33–47)andChapter5(arts.
69–76)ofthe2007MeasuresontheAdministrationofFuturesCompanydealwithcorporategovernanceoffuturescompanyandprotectionofclients'assetsrespectively.
Incontrast,the2002MeasuresontheAdministrationofFuturesBrokerFirmshavenospecificconcentratedchaptersapartfromsomeindividualarticleswhichdealwiththeissueofcorporategovernanceandprotectionofclients'assets.
SeeTheMeasuresontheAdmin.
ofFuturesCo.
,supranote66,atch.
3,Arts.
33–47,ch.
5,Arts.
69–76.
2009]TheFuturesMarketinChina405BrokerageCo.
Ltd.
,173a1995casewherethepartiessignedanagreementthatWangHuiwenwouldopenanaccountanddeposit500,000yuanandXinguangwouldactashisagentintradingdomesticandinternationalcommodityandfinancialfutures,optionsandspottradingproducts.
174BetweenOctober16andOctober24,1995,WangHuiweninstructedXinguangtosell1800lotsofShanghai95.
11glueboardfuturesattheShanghaiCommodityExchange.
175Afteralossof1,186,800yuan,WangHuiwensuedXinguangintheIntermediatePeople'sCourtofZhuhaiCity,claimingthatthedefendantfailedtoexecutehisinstructions.
176TheCourtfoundthatdefendantfailedtoshowthatthecompanyhadcorrectlyexecutedplaintiff'sinstructions;theevidenceofthedealpriceconflictedwiththeShanghaiCommodityExchangerecords.
177ThiswasenoughfortheCourttoinferthatthedefendantfailedtotradeundertheplaintiff'sinstructions.
178FollowingArticle61ofthe1986GPCL,179theCourtrequiredthedefendanttoreturn1,186,000yuanand54,000yuanincommissionchargesandapplicableinterests,respectively.
180ThedefendantappealedintheGuangdongHighPeople'sCourt,arguingthattheevidentiaryproblemswerecausedbythecommonbusinesspracticesof"firstin,firstout"(xianru,xianchu)and"mixedpositionoperation"(huncangcaozuo).
181Thesepracticeswerethecustomandusagefollowedbymanyfuturescompaniesasamatterofconvenience,administrativeefficiencyandcosteffectiveness.
However,theGuangdongHighPeople'sCourtstatedthattherulesoftheShanghaiCommodityExchangeshouldbethestandardbywhichtojudgewhetheracertainbusinesspracticebreachestradingrulesbecausethatexchangewastheultimatetradingplace.
182Sincetheindustrypracticesof"firstin,firstout"and"mixedpositionoperation"violatedtherulesoftheShanghaiCommodityExchange,theCourtheldthatthedefendantcouldnotjustifyitsownpracticesbyarguingthattheywerecommonandnormalpracticesinthefuturesbusiness.
183173.
SeeWangHuiwenv.
ZhuhaiCityXinguangFuturesBrokerageCo.
,intheGazetteoftheSupremePeople'sCourt,issue1,1999,at29–30(P.
R.
C.
).
174.
SeeWangHuiwen,at29–30.
175.
Seeid.
176.
Seeid.
177.
Seeid.
178.
Seeid.
179.
Article61ofthe1986GPCLstates,"[a]fteracivilacthasbeenadjudgedvoidorhasbeenrescinded,thepartywhohadacquiredpropertyasaresultofsuchactshallreturnittothepartywhosufferedtheloss.
Thepartyatfaultshallcompensatetheotherpartyforthelossesitsufferedasaresultofsuchact;ifbothpartiesareatfault,eachpartyshallassumeresponsibilitycorrespondingtotheirshareoffault.
"1986GPCL,supranote12,atArt.
61.
180.
SeeWangHuiwenv.
ZhuhaiCityXinguangFuturesBrokerageCo.
,intheGazetteoftheSupremePeople'sCourt,issue1,1999,at29–30(P.
R.
C.
).
181.
SeeWangHuiwen,at29–30.
182.
Id.
at30.
183.
Id.
406BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3WangHuiwenshowsthatevidenceplaysacentralroleindeterminingwhetheragiveninstructionfromaclientwasgenuinelyexecutedbyafuturesbrokerfirm.
Thegeneralevidentiaryruleisthatclaimantsshalldischargetheburdenofproof(shuizhuzhang,shuijuzheng);184however,adefendantbrokerfirmtypicallywouldbeartheburdenofproofunderthe1995SPCFuturesJudicialGuidelinesifaclientclaimedthefirmdidnotconducttradinginthemarket.
185WangHuiwenwascorrectlydecidedalongtheSupremePeople'sCourtdirection,asprescribedinthe1995SPCFuturesJudicialGuidelines;thatis,whenclientssuspectthatthebrokerfirmfailedtotradeonthemarketaccordingtotheirinstructions,thebrokerfirmshallbeartheburdenofproof.
186The2003SPCFuturesJudicialProvisionsrefinedthe1995SPCFuturesJudicialGuidelines'treatmentoftheburdenofproofwheretheissueiswhetherafuturesbrokerfirmfailedtocarryoutaclient'stradinginstruction.
UnderArticle56ofthe2003SPCFuturesJudicialProvisions,afuturesbrokerfirmbearstheburden.
187However,ifaclienthasevidenceprovinghistradinginstructionwasnotexecutedonthemarket,thepeople'scourtmustexaminethefuturesexchangetradingrecordsandthefirmtradingsettlementnotificationstodeterminewhetherrecordsmatchtheclient'sinstructionsfortheproduct,thedirectionoftrading,thepriceoftradingandthetradingtime;inaddition,thecourtmayalsolooktothequantityofthetradinginstructed.
188Ingeneral,the2003SPCFuturesJudicialProvisionsapplyonlytocausesofactionthataccrueafterJuly1,2003,butinaccordancewithArticle63,the2003SPCFuturesJudicialProvisionsmayapplytoacauseofactionthataccruedbeforethatdateiftherearenootherclearanddefiniteprovisionsthatapply.
189Onceacaseisclosedandtakeslegaleffect,however,itmaynotberetriedbyreferencetothe2003SPCFuturesJudicialProvisions.
190Forexample,inChenZhongyiv.
TianyiFuturesBrokerageCo.
Ltd.
thepartiessignedafuturesbrokeragecontract,wherebyChenZhongyientrustedbrokerTianyitocarryoutfuturestradingwhileChenZhongyi184.
See1991CivilProcedureLaw,supranote11,atArt.
64.
185.
The1995SPCFuturesJudicialGuidelines,supranote7,atSec.
9.
186.
SeeWangHuiwenv.
ZhuhaiCityXinguangFuturesBrokerageCo.
,inGazetteoftheSupremePeople'sCourt,issue1,1999,at30(P.
R.
C.
).
187.
Article56(1)ofthe2003SPCFuturesJudicialProvisionsstatesthata"[f]uturescompanyshouldbeartheburdenofproofastowhethertheclient'stradingorderhasbeenexecutedonthemarket.
"SeeThe2003SPCFuturesJudicialGuidelines,supranote7,atArt.
56(1).
188.
The2003SPCFuturesJudicialGuidelines,supranote7,atArt.
56(2).
189.
UnderArticle63,the2003SPCFuturesJudicialProvisionsdonotapplyretroactively.
However,ifanambiguityexistsinacauseofactionthatarisesbeforeJuly1,2003,thecourtmaylooktotheprovisionsforguidance.
SeeThe2003SPCFuturesJudicialGuidelines,supranote7,atArt.
63.
190.
SeeThe2003SPCFuturesJudicialGuidelines,supranote7,atArt.
63.
2009]TheFuturesMarketinChina407boretheassociatedrisks.
191ChenZhongyiopenedanaccountatTianyi,wasassignedauniqueclientcode,andtheninstructedTianyitopurchasetwentylotsofNovembersoybeanatatotalpriceof441,800yuan.
192Whenthevaluedecreasedby41,800yuan,ChenZhongyisuedTanyiintheIntermediatePeople'sCourtofChengdu,Sichuan,claimingthedecreaseof41,800yuanindamagesanddemandingreturnofthe600yuancommissionchargedbythedefendantforthetransactions.
193Thecourt'sexaminationoftheDalianCommodityExchangerecordsrevealedfivetransactionsmadewithChenZhongyi'suniqueclientcodeonthatdate.
Threeofthetransactionsmatchedtheplaintiff'sinstructionsinproduct,quantity,priceandtimeofthedeal,buttheplaintiffhadinstructedonlyonepurchase.
TheCourtrecognizedthatthedefendanthadconducted"mixedcodetrading"(hunmajiaoyi),thatis,tradingwherebyacommoncodeissharedbyseveralclients.
194Underthismixedcodetradingpractice,itwasinevitablethataclient'sowncodewouldnotbethesameasthecodeusedintrading.
195Theissuewaswhetheroneofthethreetransactionscarriedoutbythedefendantwastheplaintiff'sinstructedtransaction.
Sincethe1995SPCFuturesJudicialGuidelineslackedcriterionbywhichthepeople'scourtcoulddeterminewhetherafuturesbrokerfirmcarriedoutaclient'stradinginstruction,theCourtreferredtoArticle56ofthe2003SPCFuturesJudicialProvisionsforguidance.
196TheCourtsaidthatbecausetheDalianCommodityExchange'stradingrecordsmatchedthedefendant'stradingsettlementnotificationsandtheplaintiff'sinstructionintermsofproduct,thedirectionoftrading,thepriceoftrading,thetradingtimeandthequantityofthetrading,itshouldthereforebedeterminedthatthedefendanthadexecutedtheplaintiff'sinstructiononthemarket.
197Althoughtheplaintiffsubmittedthatthedefendanthadnotconductedamixedcodetradingbuthadusedothers'tradingresultsastheplaintiff's,becausetheplaintiffhadnotadducedoppositeevidencetoprovethesubmission,theplaintiff'ssubmissioncouldnotbesupported.
198TheIntermediatePeople'sCourtofChengduthenrejectedtheplaintiff'sclaim.
199191.
SeeQihuosusongyuanliyupanli[PRINCIPLESANDPRECEDENTSOFFUTURESLITIGATION]374–80(WuQingbaoetal.
eds.
,Beijing:thePeople'sCourtPublishingHouse,2005)(discussingChenZhongyiv.
TianyiFuturesBrokerageCo.
)[hereinafterPRINCIPLESANDPRECEDENTSOFFUTURESLITIGATION].
192.
Id.
at375.
193.
Id.
194.
Seeid.
195.
Seeid.
196.
Id.
at376.
197.
SeePRINCIPLESANDPRECEDENTSOFFUTURESLITIGATION,supranote191,at376.
198.
Id.
199.
Id.
408BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3OnappealbytheplaintiffintheSichuanHighPeople'sCourt,boththerulingandreasoningwereupheld.
200Accordingtoatleastonecommentator,boththeinstantandappealcourtsinthiscasemadecorrectjudgmentsinaccordancewiththeevidentialcriterionsetoutbyArticle56ofthe2003SPCFuturesJudicialProvisions.
201AlthoughtheplaintiffclaimedthatherinstructionhadnotbeenexecutedonthemarketonJune9,2000,nodefiniteevidencewasadducedtoprovethissubmission.
202Therefore,theburdenofproofassumedbytheplaintiffhadnotbeenmet.
203Whiletheplaintiffclaimedthatthedefendanthadnotexecutedherinstructionandusedothers'tradingresultstoproveithadexecutedherinstruction,suchclaimscouldnotbeproven204Intheveinofthe1999ProvisionalRegulations,the2007Regulationsreiteratethatsecuritiescompaniesshallneithercarry-outfuturestradingwithoutclients'instructionnorfailtoaccordtoclients'instruction.
205Clientsmaygivefuturescompaniestradingordersinwriting,bytelephone,orviainternet,buttheirordersmustbeclearandcomplete.
206Iffuturescompaniescarryoutfuturestradingwithouttheirclients'instructionsorfailtofollowtheirclients'instructions,oriffuturescompaniesfailtoexecuteclients'instructionsinfuturesexchanges,thenfuturescompaniesaresubjecttoacombinedregulatorysanctionofcautionbyaregulatorybody,confiscationofillegalgainsandafineofonetothreetimestheillegalgains.
207Inseriouscases,businesseswillbesuspendedortheirlicenceswillberevoked.
208VII.
FORCEDLIQUIDATIONBYAFUTURESEXCHANGEORFUTURESBROKERFIRMDisputesoftenariseregardinglossesoccurringafteraforcedliquidation.
"Forcedliquidation"(qiangzhipingcang)referstoaforcedmeasuretakenbyafuturesexchangeorafuturesbrokeragefirmtocloseoutthepositionsheldbythefirmoraclientofthefirmwhentherequiredmarginfallsandthefirmortheclientfailstogainadditionalmarginontime,assetoutinthetradingrulesofthefuturesexchangeorbytheapplicablefuturesbrokerage200.
Id.
at378.
201.
Seeid.
at379–80(discussingChenZhongyiv.
TianyiFuturesBrokerageCo.
)(commentingthatsincethe1995SPCFuturesJudicialGuidelineshadnoclearprovisionsregardingtheburdenofproofundersuchcircumstances,theCourtwasrighttodealwiththeissuebyreferencetoArticle56ofthe2003SPCFuturesJudicialProvisions.
)202.
Id.
at380.
203.
PRINCIPLESANDPRECEDENTSOFFUTURESLITIGATIONsupranote191,at380.
204.
Id.
205.
The2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
25.
206.
The2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
27.
207.
The2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
70.
208.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
71.
2009]TheFuturesMarketinChina409contract.
209Thenatureofthedisputeiswhethertheforcedliquidationmeasureisarightoranobligationoffuturesexchangesorfuturesbrokerfirms,andalsowhoshouldbearthelosses.
Threeviewshaveemergedonwhethertheforcedliquidationisarightoranobligationoffuturesexchangesorfuturesbrokerfirms.
210Thefirstviewregardsforcedliquidationasarightexercisablebyfuturesexchangesorfuturesbrokerfirms.
211Currently,thereisnoprovisioninChineselaworregulationthatdefinesforcedliquidationasarightoranobligationoffuturesexchangesorfuturesbrokerfirms.
212Therefore,thecharacterizationshouldbebasedontradingrulesoffuturesexchangesandthebrokerageagreementsbetweenfuturesbrokerfirmsandtheirclients.
213Futuresexchangesregardforcedliquidationintheirtradingrulesasaright,whileagreementsbetweenfuturesbrokerfirmsandtheirclientsgenerallystipulatethatthefuturesbrokerfirmhastherighttocloseoutthepositionsofaclientiftheclientfailstomakeadditionalmarginasrequired.
214Thesecondviewregardstheforcedliquidationasbotharightandanobligationofthebrokerfirm.
215Asfarasfuturesbrokerfirmsareconcerned,thefulfilmentofsuchanobligationismoreimportant.
216Sinceforcedliquidationpreventsaclient'sunfavorablemarketsituationfromworsening,itisanecessaryprotectivemeasure.
217Inthisview,thefuturesbrokerfirmshaveanobligationtoprotecttheirclients.
218209.
SeeSummaryofShanghaiSeminarsonHandlingFuturesTradingDisputes,supranote7,at229.
InaccordancewithArticle41ofthe1999ProvisionalRegulationsandArticle36ofthe2003SPCFuturesJudicialProvisions,wheretheamountofmarginofamemberofafuturesexchangefallsbelowtherequiredlevel,themembermustprovideadditionalmarginwithinthetimelimitsetoutinthetradingrulesofthefuturesexchange;wheretheamountofmarginofaclientofafuturesbrokerfirmfallsbelowtherequiredlevel,theclientmustprovideadditionalmarginwithinthetimelimitsetoutbythefuturesbrokeragecontract.
SeeThe1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
41;The2003SPCFuturesJudicialGuidelines,supranote7,atArt.
36.
210.
Thesethreeviewshavebeenacknowledgedanddiscussedbyvariousauthors.
SeeEXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW,supranote141,at253–54;seealsoShangshishenpanshiwunandianjingjie[ESSENTIALEXPLANATIONSOFDIFFICULTISSUESINTHEPRACTICEOFCOMMERCIALADJUDICATION]277–81(WuQingbaoed.
,Beijing:thePeople'sCourtPublishingHouse,2003)[hereinafterESSENTIALEXPLANATIONSOFDIFFICULTISSUESINTHEPRACTICEOFCOMMERCIALADJUDICATION];TheSummaryofShanghaiSeminarsonHandlingFuturesTradingDisputes,supranote7,at229.
211.
EXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW,supranote141,at253.
212.
Id.
213.
Id.
214.
Id.
at253–54.
215.
Id.
at254.
216.
Id.
217.
EXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW,supranote141,at254.
218.
Id.
410BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3Thethirdviewregardsforcedliquidationasarightduringtheinitialstagesofmargincall,whichisthenlatertransformedtoanobligation.
219Thefuturesexchangeorfuturesbrokerfirmgenerallymarkstwopointsoftimeinitstradingrulesoragreements:thetimeatwhichanadditionalmarginmustbemade,andthetimeatwhichthefuturesexchangeorfuturesbrokerfirmmustcloseoutpositions,iftheadditionalmarginhasnotbeenmade,inordertomitigatefurtherlosses.
220Atthetimewhentheadditionalmarginisnotmade,thefuturesexchangeorfuturesbrokerfirmacquirestherighttocloseoutthepositions,butmaynotexercisesucharightatthisstage.
221Withfurtherlosses,thefuturesexchangeorfuturesbrokerfirmmustfulfilitsobligationofaforcedliquidation,wherebyfailuretoactwouldrenderthemliableforanysubsequentlosses.
222Somecontemplateamixofthesecondandthirdviewbyregardingforcedliquidationashavingadualnature.
223Inthelegalrelationshipsbetweenafuturesexchangeandafuturesbrokerfirm,andbetweenafuturesbrokerfirmanditsclients,aforcedliquidationisacontractualrightexercisablebythefuturesexchangeorthefuturesbrokerfirm.
224Ontheotherhand,afuturesexchangeandfuturesbrokerfirmarerequired,underrelevantregulationsandtheprovisionsoftradingrules,toliquidateapositionwhentheamountofmarginfallsbelowarequiredlevel.
225Aforcedliquidationisthusanobligationfromamarketregulationpointofview.
226Ifafuturesexchangeorfuturesbrokerfirmfailsthisobligation,itbearstheresponsibilitiesandconsequencesforallowingtradingwithoverdraft.
227The1995SPCFuturesJudicialGuidelines,the1999ProvisionalRegulationsandthe2003SPCFuturesJudicialProvisionsallhaveprovisionsregardingforcedliquidation.
228Ineachprovision,differentwordsareusedinprescribingforcedliquidationbyfuturesexchangesorfuturesbrokerfirms.
The1995SPCFuturesJudicialGuidelinesusetheword"may"(keyi),229219.
Id.
220.
Id.
221.
Id.
222.
Id.
223.
EXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW,supranote141,at254.
224.
Id.
225.
Id.
226.
Id.
227.
Id.
228.
The1995SPCFuturesJudicialGuidelines,supranote7,atSec.
5(6);The1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt41;The2003SPCFuturesJudicialGuidelines,supranote7,atArt.
36.
229.
SectionFive(6)ofthe1995SPCFuturesJudicialGuidelinesstates:whilethe1999ProvisionalRegulationsusethewordInfuturestrading,brokerfirmorclientshalldepositadditionalmarginasrequiredbytheregulations.
Ifafterhavingreceivedanoticefordepositingadditionalmargin,the2009]TheFuturesMarketinChina411"shall"(yingdang).
230Ontheotherhand,the2003SPCFuturesJudicialProvisionsusethewords"havetheright"(youquan).
231Somearguethatforcedliquidationisanobligationoffuturesexchangesorfuturesbrokerfirmsbecause"shall"isusedinthe1999ProvisionalRegulations,therebyindicatingthatforcedliquidationisanobligationratherthanaright.
232Injudicialpractice,themostcommonforcedliquidationoccurswhenfuturesbrokerfirmscloseoutaclient'spositions.
However,onecanequallyarguethatforcedliquidationisarightratherthananobligationbecausethewords"havetheright"areusedinthe2003SPCFuturesJudicialProvisions.
233brokerfirmorclientfailtodepositadditionalmarginwithinthestipulatedtimelimit,theexchangeorbrokerfirmmayforceliquidatetheremainingfuturescontracts;lossesresultingfromaforcedliquidationarebornebythebrokerfirmorclient.
Wheretheexchangeorbrokerfirmdoesnotfulfillitsobligationtonotifythebrokerfirmorclient,therebycausinglossesasaresultoftheforcedliquidation,theexchangeorbrokerfirmshallbeliabletocompensatethebrokerfirmorclient.
SeeThe1995SPCFuturesJudicialGuidelines,supranote7,atSec.
5(6).
230.
Article41ofthe1999ProvisionsRegulationsstates:Whenafuturesexchangemember'smarginfallsbelowtherequiredlevel,themembermustmakeanadditionalmargindeposit.
Whenthememberfailstomaketheadditionalmargindepositwithinthetimelimituniformlyprescribedbythefuturesexchange,thefuturesexchangeshallmakeaforcedliquidationofthemember'sfuturescontracts;thememberbearstheexpensesandlossesthatresultfromtheforcedliquidation.
Whenafuturesbroker'sclient'smarginfallsbelowtherequiredlevel,andtheclientfailstomakeanadditionalmargindepositwithinthetimelimituniformlyprescribedbythefuturesbroker,thefuturesbrokershallmakeaforcedliquidationoftheclient'sfuturescontracts;theclientbearstheexpensesandlossesthatresultfromtheforcedliquidation.
SeeThe1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
41.
231.
Article36ofthe2003SPCFuturesJudicialProvisionsstates:Whenafuturesbroker'smarginfallsbelowtherequiredlevel,andthefuturesbrokerfailstomakeanadditionalmargindepositwithinthetimelimitprescribedbythefuturesexchange,itistobedealtwithinaccordancewiththetradingrules;wherethetradingrulesarenotclearanddefinite,thefuturesexchangehastherighttomakeaforcedliquidationofthebroker'sfuturescontracts,andthebrokerbearstheexpensesandlossesthatresultfromtheforcedliquidation.
Whenaclient'smarginfallsbelowtherequiredlevel,andtheclientfailstomakeanadditionalmargindepositwithinthetimelimitprescribedbyafuturesbrokerageagreement,itistobedealtwithinaccordancewiththeprovisionsofthefuturesbrokerageagreement;wheretheprovisionsarenotclearanddefinite,thefuturesbrokerhastherighttomakeaforcedliquidationoftheclient'sfuturescontracts,andtheclientbearstheexpensesandlossesthatresultfromtheforcedliquidation.
SeeThe2003SPCFuturesJudicialGuidelines,supranote7,atArt.
36.
232.
SeeESSENTIALEXPLANATIONSOFDIFFICULTISSUESINTHEPRACTICEOFCOMMERCIALADJUDICATION,supranote210,at278.
233.
Seeid.
at285.
InNingboCityRongchengTradingCo.
v.
NingboCityXinyuanFuturesBrokerageCo.
,RongchengsignedanentrustmentagreementwithXinyuanfortrading412BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3commodityfuturesattheShanghaiCommodityExchange.
234Theclausesconcerningclosingoutpositionsundercertaincircumstancesweresetoutinthedefendant'smanual,theMeasuresforRiskManagement,andseveralotherfirmdocuments.
235Thoseclausesstipulatedthatthedefendantwouldnotifyclientstoincreasetheirmarginswhentheusagerateoftheclients'fundsreacheda130%shortfall.
236Thefirmwouldnotifyaclientbefore11:00AM,andtheclientwouldberequiredtodepositthedifferencebefore9:00AMthenextday.
237Iftheshortfalloftheclient'sfundsreachedacertainpoint(300%),thefirmwouldhavetherighttocloseoutallthepositionswithoutnotifyingtheclient.
238ByJuly24,1995,theplaintiffhadpurchased2100lotsof9509glueboardcontractsfromXinyuanontheShanghaiCommodityExchange.
239OnJuly25,Rongcheng'sfundsusageratereached132%withashortfallof299,660yuan.
240XinyuanpreparedanoticethatafternoonrequiringRongchengtomakeupfortheamount,241butthenoticewasnotgiventoRongchenguntil8:45amthenextday.
242OnJuly26,afterreceivingthenotice,RongchengpreparedthemoneyanddeliveredittoXinyuanat9:25am;however,Xinyuanhadalreadyclosedoutallthepositionsat9:22am,resultinginalossof2,145,800yuan,includingacommissionchargeof37,800yuan.
243RongchengsuedXinyuanintheIntermediatePeople'sCourtofNingboCity,claimingthatXinyuan'sforcedliquidationwasinvalid.
244Xinyuanrespondedthatthefundswerebelowtherequiredlevelandtheforcedsalewasinaccordancewiththefuturestradingprovisions.
245TheNingboIntermediatePeople'sCourtfoundthatthesignedentrustmentagreement,containingtheclausesagreedbythepartiesregardingfuturestrading,waslawfulandvalid.
246Althoughthedefendantnotifiedtheplaintifftodepositadditionalmargin,itfailedtoissuethenoticeaccordingly.
247234.
Seeid.
at251–58.
235.
Seeid.
at251–52.
236.
Seeid.
at251.
237.
Seeid.
at252.
238.
SeeEXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW,supranote141,at251–52.
239.
Id.
at252.
240.
Id.
241.
Id.
242.
Id.
243.
Id.
244.
SeeEXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW,supranote141,at252.
245.
Seeid.
246.
Id.
at252–53.
247.
Id.
at253.
Underthecircumstances,theforcedsalebythedefendantconstitutedabreachofcontract;sincetherewasacausallink2009]TheFuturesMarketinChina413betweentheforcedsaleandthelossessufferedbytheplaintiff,thedefendantborecompensatoryresponsibilities.
248Therefore,inaccordancewithArticles4,106and134(1)(vii)ofthe1986GPCL,249theCourtmandatedthedefendantcompensatetheplaintifffor2,145,000yuan.
250NingboRongchengrepresentsacommondisputewheredefendantsfailtoperformtheirnotificationobligationbeforetakingaforcedliquidationmeasuretocloseouttheirclients'positions.
Plaintiffsusuallyarguethatfuturesbrokerfirmshaveadutytoliquidateundercertaincircumstancestoprotecttheirclients;iffuturesbrokerfirmsfailtotakesuchameasure,theyshouldbeliableforplaintiff'slosses.
251Apartfromthenotificationobligation,aforcedliquidationmustbe"moderate"—thatis,thesizeofthepositionstobeclosedoutshouldbelimitedtoanappropriateamount.
252Inthisrespect,Article41ofthe1999ProvisionalRegulationsfailedtoincludeaprovisionrequiringamoderateforcedliquidation,253butthe2003SPCFuturesJudicialProvisionsaddressthisissue.
254Beforethe1995SPCFuturesJudicialGuidelines,thepeople'scourtswouldconsidertherulesandpracticeofrelevantinternationalfuturesmarketswhenadjudicatingcasesinvolvingoffshorefuturestransactionsandtheissueofforcedliquidation.
InZhaoXiaomeiv.
NanjingJinzhongfuInternationalFuturesTradingCo.
,255248.
Id.
249.
Article4ofthe1986GPCLstatesthat"[c]ivilactsmustabidebytheprinciplesofvoluntariness,fairness,compensationforequalvalue,andgoodfaith.
"1986GPCL,supranote12,atArt.
4.
Article106statesthat"(1)Citizensandlegalpersonswhobreachacontractorotherwisefailtofulfillobligationsshallbearcivilliability;(2)Citizensandlegalpersonswhobyfaultinfringeonstateorcollectiveproperty,orinfringeonthepersonorpropertyofothers,shallbearcivilliability.
"1986GPCL,supranote12,atArt.
106.
Article134(1)(vii)prescribes'payingdamagesfortheinjuries'asoneoftheformsofbearingcivilliability.
1986GPCL,supranote12,atArt.
134.
250.
EXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW,supranote141,at253.
251.
See,forexample,PRINCIPLESANDPRECEDENTSOFFUTURESLITIGATION,supranote191,at446–47(acaseinwhichsixplaintiffsarguedthattheforcedliquidationmeasurewasthedefendant'sduty;asthedefendantfailedtoperformitsdutytotakeaforcedcloseoutoftheplaintiffs'positionsontime,theyshouldbeliableforthelossescausedtotheplaintiffs)[PRINCIPLESANDPRECEDENTSOFFUTURESLITIGATION].
252.
SeeESSENTIALEXPLANATIONSOFDIFFICULTISSUESINTHEPRACTICEOFCOMMERCIALADJUDICATION,supranote210,at286–87.
SeealsoEXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW,supranote141,at257.
253.
SeeESSENTIALEXPLANATIONSOFDIFFICULTISSUESINTHEPRACTICEOFCOMMERCIALADJUDICATION,supranote210,at288.
254.
Article39ofthe2003SPCFuturesJudicialProvisionsstatesthat"Afuturesexchangeorfuturesbrokershallforcetheliquidationofonlythenumberofpositionssubstantiallyequaltotheadditionalmargindepositthatthefuturesbrokerorclientneeds.
Thelosscausedbyanexcessiveliquidationshallbebornebythosewhoundertaketheforcedliquidation.
"The2003SPCFuturesJudicialGuidelines,supranote7,atArt.
39.
255.
SeeZhaoXiaomeiv.
NanjingJinzhongfuInt'lFuturesTradingCo.
,intheGazetteoftheSupremePeople'sCourt,issue3,1994,at117–19(P.
R.
C.
).
anearliercaseinvolvingtradesofAmericancoffeefutures,thepartiessignedanagreementunderwhichZhao414BROOK.
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3XiaomeiopenedanaccountwithJinzhongfuandsubsequentlydepositedUS$20,000.
256JinzhongfuclosedoutsomeofthepositionsinZhaoXiaomei'saccountwhenthemarginofZhaoXiaomei'saccountfellbelowthe100%mandatoryamount.
257However,accordingtotherulesforAmericancoffeefuturestrading,ZhaoXiaomei'saccountshouldhavebeensustainedovernightifthemarginwasabove50%ofthemandatorymargin,andatthetime,theaccount'smarginwasbelow100%butabove50%ofthemandatorymargin.
258TheNanjingIntermediatePeople'sCourtestablishedthatJinzhongfuhadclosedoutsomeofthepositionsinZhaoXiaomei'saccountwithoutfirsthavingagreedwithZhaoXiaomei.
259TheCourtnotedtheparties'contractualrelationship,wherebythedefendant,inactingforitsclientininternationalfuturestrading,wasrequiredtocomplywithrelevantinternationaltradingrules.
260TheCourtheldthedefendantresponsiblefortheforcedliquidationtakeninviolationoftheAmericancoffeefuturestradingrules,andrequiredthatthedefendantcompensatetheplaintiffUS$23,142,inaccordancewithArticle111ofthe1986GPCL.
261OnappealintheJiangsuHighPeople'sCourt,boththerulingandreasoningwereupheld.
262The2007RegulationsdonotamendArticle41ofthe1999ProvisionalRegulationsbeyondrequiringthatamemberofafuturesexchangeoraclientofafuturesexchangemakeanadditionalmarginorcloseoutpositionsitselfwhenthemarginbecomesinsufficient.
263256.
SeeZhaoXiaomei,at117.
257.
Seeidat118.
258.
Seeid.
259.
Seeid.
260.
Seeid.
261.
Article111ofthe1986GPCLstates:"Whenoneofthepartiesfailstofulfillitscontractualobligationsorperformsitsobligationsinsuchawayastoviolatethecontractualprovisions,theotherpartyhastherighttodemandperformanceorremedialmeasures;theotherpartyalsohastherighttodemandcompensationforlosses.
"1986GPCL,supranote12,atArt.
111.
262.
SeeZhaoXiaomei,at119.
263.
Article38ofthe2007RegulationsontheAdministrationofFuturesTradingstates:Wheretheamountofmarginofamemberofafuturesexchangebecomesinsufficient,themembershallmakeanadditionalmargindepositinatimelymannerorvoluntarilycloseoutthepositions.
Wherethememberfailstomaketheadditionalmargindepositorvoluntarilycloseoutthepositionswithinthetimelimitprescribedbythefuturesexchange,thefuturesexchangeshallmakeaforcedliquidationofthemember'sfuturescontracts;theexpensesconnectedwiththeforcedliquidationandthelossesincurredaretobebornebythemember.
The2007Wheretheamountofmarginofaclientofafuturesbrokerbecomesinsufficient,theclientshallmakeanadditionalmargindepositinatimelymannerorvoluntarilycloseoutthepositions.
Wheretheclientfailstomaketheadditionalmargindepositorvoluntarilycloseoutthepositionswithinthetimelimitprescribedbythefuturesbroker,thefuturesbrokershallmakeaforcedliquidationoftheclient'sfuturescontracts;theexpensesconnectedwiththeforcedliquidationandthelossesincurredaretobebornebytheclient.
2009]TheFuturesMarketinChina415Regulationsstipulate,whereamemberofafuturesexchangeoraclientofafuturescompanyfailstomaketherequiredadditionalmarginorcloseoutpositionsitselfwithinthetimelimitsetoutbythefuturesexchangeorthefuturescompany,thefuturesexchangeorthefuturescompanymustmakeaforcedliquidationofthefuturescontractofthememberortheclient,andtheexpensesconnectedwiththeforcedliquidationandthelossesincurredaretobebornebythememberortheclient.
264Commoditiesandfinancialfuturesexchangeshaveformulatedtheirowntradingrulestocoverthecircumstances,principlesandproceduresforforcedliquidation,includingnoticerequirementsandtheallocationofprofitsorlossesconnectedwithaforcedliquidation.
265VIII.
THERESPONSIBILITIESOFFUTURESEXCHANGESFuturesexchangesareresponsibleforthesmoothday-to-dayrunningoffuturestrading.
Oneoftheimportantresponsibilitiesofafuturesexchangeistoguaranteeperformanceoffuturescontractsinfuturestrading.
BothadministrativeregulationsandthejudicialguidelinesoftheSupremePeople'sCourtcontainprovisionsilluminatingthisresponsibilityanddefiningtherightandobligationofthefuturesexchangeinguaranteesmadebythefuturesexchange.
Onabroadlevel,lessonshavebeenlearnedfromtheearlyyearsofChina'sfuturesexchanges.
Sincethattime,regulatorystandardsforoperatingfuturesexchangesaimedtoensurethatappropriatesupervisionwasinplaceandtheoperationoffuturesexchangesandfuturestradingwassmoothandefficient.
The1995SPCFuturesJudicialGuidelinesprovidedthatfuturesexchangesmustguaranteeperformanceoffuturescontractsinfuturesThelanguage"closeoutpositionsthemselves"wasnotprovidedforinArticle41ofthe1999ProvisionalRegulations.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
38.
SeealsoThe1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
41.
264.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
38.
265.
SeeZhengzhoushangpinjiaoyisuoqihuojiaoyifengxiankongzhiguanlibanfa[Admin.
MeasuresoftheZhengzhouCommodityExch.
onRiskControlofFuturesTrading]ch.
6,SystemofForcedLiquidation,Arts.
46–53,(promulgatedbyZhengzhouCommodityExch.
GoverningCouncil,Mar.
28,2009,effectiveApr.
20,2009),availableathttp://www.
czce.
com.
cn/file/czcerules20090415-3.
htm(P.
R.
C.
);Dalianshangpinjiaoyisuofengxianguanlibanfa[MeasuresoftheDalianCommodityExch.
onRiskMgmt]ch.
6,SystemofForcedLiquidation,Arts.
37–44(promulgatedbyDalianCommodityExch.
GoverningCouncil,Oct.
29,2007,effectiveOct.
29,2007),availableathttp://www.
dce.
com.
cn(P.
R.
C.
);Shanghaiqihuojiaoyisuofengxiankongzhiguanlibanfa[Admin.
MeasuresoftheShanghaiFuturesExch.
onRiskControl]ch.
6,SystemofForcedLiquidation,Arts.
33–41(promulgatedbyShanghaiCommodityExch.
,Jan.
9,2008,effectiveJan.
9,2008),availableathttp://www.
shfe.
com.
cn/docview/docview_50206012(P.
R.
C.
);Zhongguojinrongqihuojiaoyisuofengxiankongzhiguanlibanfa[Admin.
MeasuresoftheChinaFinancialFuturesExch.
onRiskControl]ch.
6,SystemofForcedLiquiation,Arts.
25–33(promulgatedbyChinaFin.
FuturesExch.
,June27,2007,effectiveJune27,2007),availableathttp://www.
cffex.
com/cn/wps/wcm/connect/cffex_de(P.
R.
C.
).
416BROOK.
J.
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&COM.
L.
[Vol.
3trading.
266Ifanypartywasunabletoperformtimelyandwhollytheobligationstipulatedinafuturescontract,theexchangewasrequiredtoperformtheobligationontheparty'sbehalforbeliableforcompensation.
267Theexchangethenhadtherighttopursuerepaymentfromthedefaultparty.
268Moreover,the1999ProvisionalRegulationsrequiredanydepositofamemberofthefuturesexchangetobeusedfirsttosatisfytheliabilitiesinanybreachofcontract;ifthedepositwasinsufficient,thefuturesexchange,asrequiredbytheregulations,wouldusetheriskreservefundanditsownfundstosatisfytheliabilitiesonbehalfofitsmember,andthusacquiretherighttopursuerepaymentfromthememberaftersettlement.
269The1995SPCFuturesJudicialGuidelinesandthe1999ProvisionalRegulationsfailedtoelaborateonthenatureoftheguaranteeundertakenbythefuturesexchange.
Oneinterpretation,calledthecivillaw"guarantee"(baozheng),consideredtradingconductedbymembersoftheexchangetobeguaranteedbytheexchange'sownfunds.
270Yetthedifferencebetweentheguaranteeundertakenbythefuturesexchangeandanordinarycivillawguaranteewasthatthefuturesexchangecoulduseitsregulatorymeanstofirsttakefundsfromthedefaultingpartyortheriskreservefundstosatisfytheliabilitiesforthebreachofcontract,eventhoughnosuchrightexistsinanordinarycivillawguarantee.
271Therefore,theinterpretationofsuchaguaranteeasa"mixedtypeguarantee"(hunhexingdanbao)wasmoreappropriateinthatitcombinedthefeaturesofacivillawguaranteeandarightofself-regulation.
272The2003SPCFuturesJudicialProvisionsprovidesfurtherproceduralrulesconsistentwiththe1995SPCFuturesJudicialGuidelinesandthe1999ProvisionalRegulations.
Ifafuturesexchangedoesnotperformfuturescontractsonbehalfofafuturesbrokerfirm,thefuturesbrokerfirmmustmakeclaimsonthefuturesexchangeaccordingtoitsclients'requests.
273266.
SeeThe1995SPCFuturesJudicialGuidelines,supranote7,atSec.
5(1).
267.
SeeThe1995SPCFuturesJudicialGuidelines,supranote7,atSec.
5(1).
268.
SeeThe1995SPCFuturesJudicialGuidelines,supranote7,atSec.
5(1).
269.
Article44(1)ofthe1999ProvisionalRegulationsontheAdministrationofFuturesTradingstatesthat"Whereanymemberbreachesthecontractinfuturestrading,thefuturesexchangeshallfirstusethemember'smargintobeartheliabilityforbreachofcontract.
Ifthemarginisinsufficient,thefuturesexchangeshallusetheriskreservefundanditsownfundstobeartheliabilitiesonbehalfofthemember,andthusacquiretherighttopursuerepaymentfromthememberinquestion.
"SeeThe1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
44(1).
270.
SeeESSENTIALEXPLANATIONSOFDIFFICULTISSUESINTHEPRACTICEOFCOMMERCIALADJUDICATION,supranote210,at298.
271.
Id.
272.
Seeid.
273.
The2003SPCFuturesJudicialGuidelines,supranote7,atArt.
49(1).
Ifthefuturesbrokerfirmrefusestodoso,theclientsmaysuethefuturesexchangedirectly,andthefuturesbrokerfirmmayjointhe2009]TheFuturesMarketinChina417proceedingsasathirdparty.
274The2003SPCFuturesJudicialProvisionsclearlydefinetherightandobligationofthefuturesexchangeinguaranteesmadebythefuturesexchange.
Ifafuturesbrokerfirmfailstoperformpecuniaryobligationsaccordingtotherequirementsofadailymark-to-marketsettlementsystemandthefuturesexchangedoesnotperformtheobligationonbehalfofthefuturesbrokerfirm,thefuturesexchangeisliableforthelosscausedtotheothertradingparty,andmayrecoverfromthedefaultingparty.
275Onecase,HainanZhongqingJiyeDevelopmentCentrev.
SichuanPingyuanIndustrialDevelopmentCo.
,276whichinvolvedtradingofnaturalrubberfuturesR708contractsin1997,illustratesafuturesexchange'srighttopursuerepaymentfromadefaultingpartyafterthefuturesexchangeperformedanobligationonbehalfofafuturesbrokerfirm.
OnApril5,1997,thedefendantSichuanPingyuanprivatelysigneda"seattransferagreement"withSichuanHezheng,athirdpartyfuturesbrokerfirm.
277BothPingyuanandHezhengweremembersoftheZhongshangFuturesExchange.
278Undertheagreement,Pingyauntransferreditsseat(No.
165)toHezhengforafeeof300,000yuan.
279ThetransferagreementwasnotreportedtotheZhongshangFuturesExchangeandthereforeviolatedatradingruleprohibitingsuchtransfers.
TheSupremePeople'sCourtfoundthetruenatureandpurposeoftheagreementwastorenttheseatprivately.
280OnJuly29,1997,seat165held4250lotsofR708contracts.
Therefore,theCourtrejectedPingyuan'sargumentagainstliabilityforanyconsequencesoftradingconnectedwithitsseat.
281TheZhongshangFuturesExchangeissuedanoticeinformingseat165thatitsdepositwasinsufficientandmustbereconciledbeforetheopeningofthenexttradingday.
282Subsequently,seat165closedout917lotsand3333lotsremained.
283Shortlythereafter,theZhongshangFuturesExchangenotifiedseat165thatnosufficientdeposithadbeenmadeforthe3333lots,andclaimedabreachofcontract.
284274.
The2003SPCFuturesJudicialGuidelines,supranote7,atArt.
49(2).
275.
The2003SPCFuturesJudicialGuidelines,supranote7,atArt.
49(1)–(2).
276.
SeeHainanZhongqingJiyeDev.
Ctr.
vSichuanPingyuanIndus.
Dev.
Co.
,inGazetteoftheSupremePeople'sCourt,issue4,2005,at25–30(P.
R.
C.
).
HainanZhongqingJiyeDevelopmentCentreusedtobeHainanZhongshangFuturesExchangelocatedinHaikoucity,Hainanprovince,whosenamewaschangedin2000duringtheproceedings.
277.
HainanZhongqingJiyeDev.
Ctr.
,at25.
278.
Id.
279.
Id.
280.
TheCSRCinvestigatedintotheirregularitiesandmarketmanipulationconnectedwiththetradingofR708rubberfuturescontractsintheZhongshangFuturesExchangein1997andconcludedthatthePingyuanCompanyhadrentedoutitsseatandviolatedtheregulation.
Seeid.
at25–30.
281.
Id.
at26.
282.
Id.
283.
HainanZhongqingJiyeDev.
Ctr.
,at26.
284.
Id.
Accordingtothesettlementrulesofthe418BROOK.
J.
CORP.
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&COM.
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[Vol.
3ZhongshangFuturesExchange,20%oftotalpriceofthecommodity,or37,196,280yuan,wasdueinpenaltyfees.
285Anamountof7,692,280yuanwastakenfromPingyuan'saccount,andbecausePingyuanfailedtopaythebalance,theZhongshangFuturesExchangepaidtheremaining29,503,999.
14yuan.
286TheZhongshangFuturesExchangelatersuedPingyuaninSichuanHighPeople'sCourt,claimingitwasduearefundofthe29,503,999.
14yuanfromPingyuan.
287TheSichuanHighPeople'sCourtheldthatinthecourseoffuturestrading,afuturesexchangeshouldguaranteeperformanceoffuturescontracts;ifanypartyisunabletoperformtimelyandwhollytheobligationstipulatedinthefuturescontracts,thefuturesexchangeshallperformontheparty'sbehalfandthusacquiretherighttoarefund.
BecausetheZhonshangFuturesExchangeguaranteedperformanceoffuturescontracts,itsobligationtoreconcileanyshortfallafteradefaultingpartyfailedtoperformtimelyandwhollytheobligationstipulatedinafuturescontractconsequentlygaverisetoarighttoreimbursement.
288TheCourtaffirmedtheZhongshangFuturesExchange'spaymentof29,503,999.
14yuanforseat165forbreachofcontractbecausesufficientevidenceindicatedthatsuchrecoverycompliedwiththeregulation.
289Ontheotherhand,theCourtsaidtheZhongshangFuturesExchangehadcontributedtothebreachandshouldbeartheresponsibilitiesjointlywithPingyuan.
290TheCourtfoundthatZhongshangFuturesExchangeissuedsufficientnotice,remindingthememberscontrollingtheamountofpositionsofrubberfuturescontracts.
ItwasofnoimportthattheZhongshangFuturesExchangehadissuedanoticetoallmembersonJuly25,requiringeachmembertoholdnomorethan200lotsofpositionsofrubberfuturescontractsinthesettlementmonth;theZhongshangFuturesExchangeallowedseat165toopennewpositionsof1000lotsonJuly28,and3150lotsonJuly29whenseat165'sfundswereinsufficientonJuly29.
291TheCourtsaidthistransactionviolatedtheCSRCstipulationsonstrictcontroloftheoverallamountofpositions292285.
Id.
286.
Id.
287.
Id.
at27.
288.
Id.
289.
HainanZhongqingJiyeDev.
Ctr.
,at27.
290.
Seeid.
291.
Seeid.
292.
Seeid.
at27.
In1995,theCSRCissuedtheCircularonFurtherControllingRisksofFuturesMarketsandSternlyStrikingMarketManipulation(Guanyucaozongjinyibukongzhiqihuoshichangfengxian,yanlidajishichangxingweidetongzhi),whichstipulatedthatallfuturesexchangesmuststrictlycontrolthetotalamountofoutstandingpositionsinthemarket.
T+0settlement,whichwasthepracticeofsame-daysettlementoftrades,wasprohibited.
SeeGuanyucaozongjinyibukongzhiqihuoshichangfengxianyanlidajishichangxingweidetongzhi[NoticeonFurtherControllingRisksofFuturesMarkets&SternlyStrikingMarketManipulation]Points1&2(promulgatedbytheChinaSec.
RegulatoryComm'n,Oct.
24,1995),availableathttp://shanghai.
csrc.
gov.
cn/n575458/n575727/n575802/1994719.
htm(P.
R.
C.
).
andalso2009]TheFuturesMarketinChina419violatedtheprohibitionof"T+0settlement"—thatis,aprohibitiononthefuturesexchanges'strategyofopeningnewpositionsbyclosingoutpositionsonthesamedaytoyieldprofitmargins.
293InaccordancewithArticles84,106(1)and130ofthe1986GPCL,294theCourtruledthattheZhongshangFuturesExchangeandPingyuanmusteachpay18,598,140yuanforthebreach.
295TheZhongshangFuturesExchangeappealedtotheSupremePeople'sCourt,whichoverturnedthejudgmentoftheSichuanHighPeople'sCourt,citingArticle44(1)of1999ProvisionalRegulations,296SectionFive(1)ofthe1995SPCFuturesJudicialGuidelines,297andArticles153(1)(ii)and(iii)and158ofthe1991CivilProcedureLaw.
298TheSupremePeople'sCourt'sreasoningintheappealwasthreefold.
First,"aslongasit[couldbeestablished]thattheZhongshangFuturesExchangepaidthefeesonbehalfofPingyuanforthebreachofcontract,Pingyuanshould,pursuanttothelaw,repaytheZhongshangFuturesExchange.
"299Thedivisionofresponsibilitiesamongthepartiesinvolvedinseat165'stradingwasadifferentlegalrelationshipfromtheissueofclaimingrepaymentbytheZhongshangFuturesExchange;theonlyissuethelowercourtshouldhavetriedintheproceedingswastheclaimforrepayment,nottheresponsibilitiesresultingfromseat165'strading.
300293.
SeeHainanZhongqingJiyeDev.
Ctr.
,at27.
294.
Article84ofthe1986GPCLstates:"Adebtisaspecialrightandobligationcreatedbetweenpartiesaccordingtocontractualagreementsorlegalprovisions.
Thepartywhohastherighttoenforcetheobligationisthecreditor.
Thepartywhobearstheobligationisthedebtor.
"1986GPCL,supranote12,atArt.
84.
Article106(1)states,"[c]itizensandlegalpersonswhobreachacontractorotherwisefailtofulfillobligationsshallbearcivilliability.
"1986GPCL,supranote12,atArt.
106(1).
UnderArticle130,"[w]hentwopartiesormorejointlyinfringeanotherparty'srightandcausedamages,theinfringingpartiesarejointlyandseverallyliable.
"Thecreditorhastherighttodemandthedebtortofulfilltheirobligationsaccordingtothecontractualagreementsorlegalprovisions.
See1986GPCL,supranote12,atArt.
130.
295.
HainanZhongqingJiyeDev.
Ctr.
,at28.
296.
SeeThe1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32.
297.
The1995SPCFuturesJudicialGuidelines,supranote7.
298.
HainanZhongqingJiyeDev.
Ctr.
,at29–30.
AccordingtoArticle153(1)ofthe1991CivilProcedureLaw:ThePeople'sCourtofSecondInstance,afterhavingheardthecaseonappeal,shallproceedasthefollowingconditionsprescribe:(ii)Iftheoriginaljudgmentwasmistakeninitsapplicationoflaw,theCourtofSecondInstanceshallamendtheoriginaljudgmentaccordingtothelaw.
(iii)Iftheoriginaljudgmentwasmistakeninitsfactfindings,oriftheoriginaljudgmentwasambiguousinitsfactfindings,oriftheoriginaljudgmentwasbasedoninsufficientevidence,theCourtofSecondInstanceshallsetasidetheoriginaljudgmentandremandthecasetothePeople'sCourtforretrial,ortheCourtofSecondInstancemayamendthejudgmentafteraninvestigationofthefacts.
See1991CivilProcedureLaw,supranote11,atArt.
153(1).
299.
HainanZhongqingJiyeDev.
Ctr.
,at28.
300.
Id.
at28–29.
420BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3Second,therewasnoinevitableandcausallinkbetweentheZhongshangFuturesExchange'sviolationofrelevantregulationsandrulesandPingyuan'sbreachofcontract.
301Third,theZhongshangFuturesExchange'sliabilityforviolatingtheCSRCstipulationandT+0settlementrestrictionwasmerelyrelatedtoanadministrativeresponsibility.
302Therefore,thejudgmentoftheSichuanHighPeople'sCourtconfusedtheallocationofliability:theZhongshangFuturesExchangewasliablefortheadministrativeresponsibility,notforabreachofcontract.
303TheSupremePeople'sCourtruledthatPingyuanmustrepaytheplaintiffanamountof29,503,999.
14yuanandanyapplicableinterests;moreover,allthecourtcostswouldbebornebyPingyuan.
304Needlesstosay,futuresexchangesplayanimportantroleinfuturestrading.
Smoothandefficientfuturestradingdependsuponawell-regulatedfuturesmarketandtheroleplayedbythefuturesexchange.
Forexample,inDingWeiv.
ZhengzhouCommodityExchange,305theZhengzhouCommodityExchangewasblamedforalackofappropriatesupervisionandcontrol,creatingconditionsforseriousviolationsoftherulesbysomemembersoftheexchange.
306The1999ProvisionalRegulationslistedaseriesofregulatorystandardsforoperatingfuturesexchanges,suchasestablishingariskreservefundandotherriskmanagementsystems,DingWeiv.
Zhengzhouwasnotanisolatedcase,particularlyintheearlyyearsofChina'sfuturesmarket.
307301.
Id.
at29.
302.
Id.
at29.
303.
SeeUNDERSTANDING&APPLICATIONOFTHE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURT,supranote75,at333.
304.
HainanZhongqingJiyeDev.
Ctr.
,at30.
305.
SeeUNDERSTANDING&APPLICATIONOFTHE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURT,supranote75,at249–61.
306.
UNDERSTANDING&APPLICATIONOFTHE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURT,supranote75,at260.
TheSupremePeople'sCourt,theappellatecourtinthiscase,foundthattheZhengzhouCommodityExchangeallowedT+0settlementuntilDecember1996andincludingwhenthedisputeoccurred,whichwasaviolationofthebanonT+0settlement,asstatedintheCSRC's1995CircularonFurtherControlRisksofFuturesMarketandSternlyStrikeMarketManipulation.
OnecommentatornotedthattheinappropriateandineffectivesupervisionandcontrolbytheZhengzhouCommodityExchange,coupledwiththeviolationofregulationsbytheZhengzhouCommodityExchangeitself,wereindispensableconditionsforseriousviolationsoftherulesbyafewbigplayersoftheexchange.
Id.
at255,260.
307.
SeeThe1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
35.
Futuresexchangesshouldestablishandimprovethefollowingriskmanagementsystemshereunder,pursuanttorelevant[PRC]statutoryprovisions:1.
thesecuritydepositsystem;2.
thedailysettlementsystem;3.
theMaximumDailyPriceFluctuationLimitsSystem;4.
thepositionlimitsandlargeopenpositionreportingsystem;andestablishingcomprehensiverules5.
theriskreservefundsystem;2009]TheFuturesMarketinChina421andcodesofconductforengagingintradingactivities,managingriskcontrolandsupervisingworkstaffoffuturesexchanges.
308The2003SPCFuturesJudicialProvisions,ontheotherhand,clearlydefinedcompensatoryliabilitiesoffuturesexchangesindifferentaspectsoffuturestrading.
Itcoveredtheliabilitiesrelatedtothenotificationdutyoffuturesexchanges,309thefuturesexchange'sresponsibilitiesintradingwithoverdraft,310theactionsconcerningforcedliquidation,311andtheliabilitiesfromsettlementofphysicalcommodities.
312Theregulatorystandardssetoutinthe1999ProvisionalRegulationscontinuetotakeeffectunderthe2007Regulations.
313Ifafuturesexchangegrantsaguaranteeandthereisabreachofcontract,the2007Regulationsareakintothe1999ProvisionalRegulationsinrequiringthemember'sdeposittobeusedfirsttosatisfytheliabilities.
Ifthebreachingmember'sdepositisinsufficient,thefuturesexchangethenusestheriskreservefundanditsownfundtosatisfytheliabilitiesonbehalfofthemember,andthusacquirestherighttopursuerepaymentfromthemember.
314Thismechanism,togetherwiththeprovisionsinthe2003SPCFuturesJudicialProvisions,315IX.
THEFINANCIALFUTURESMARKETANDFINANCIALFUTURESTRADINGensuressmoothtransactionsinfuturesexchange.
China'sfinancialfuturesmarketdevelopedinparallelwiththecommodityfuturesmarket.
InJune1993,theStateAdministrationofForeignExchangeissuedtheTrialMeasuresfortheAdministrationofForeignExchangeFuturesBusiness,3166.
AndotherriskmanagementsystemsprescribedbytheCSRC.
The1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
35.
308.
SeeThe1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
55.
309.
The2003SPCFuturesJudicialGuidelines,supranote7,atArt.
25(1).
310.
The2003SPCFuturesJudicialGuidelines,supranote7,atArts.
31(1),32(1),33(1),34(1),and35(1).
311.
The2003SPCFuturesJudicialGuidelines,supranote7,atArts.
39,40.
312.
The2003SPCFuturesJudicialGuidelines,supranote7,atArts.
45,47.
313.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atch.
2,Arts.
6–14(amajorityofwhicharethesameprovisionsasstipulatedinChapter2ofthe1999ProvisionalRegulationsontheAdministrationofFuturesTrading,includingArts.
6–20).
SeealsoThe1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArts.
6–20.
314.
SeeThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
40(1).
315.
The2003SPCFuturesJudicialGuidelines,supranote7,atArt.
48.
316.
Waihuiqihuoyewuguanlishixingbanfa[TrialMeasuresfortheAdmin.
ofForeignExch.
FuturesBus.
](promulgatedbytheSt.
Admin.
ofForeignExch.
,June9,1993uponanapprovalbythePeople'sBankofChina,effectiveJune9,1993,repealedMar.
27,1996),availableatISINOLAW(lastvisitedMay18,2009)(P.
R.
C.
)[hereinafterTheTrialMeasuresfortheAdmin.
ofForeignExch.
FuturesBus.
].
whichsetoutbasicregulatoryrulesconcerningforeignexchangefutures(waihuiqihuo)andforeignexchangedeposit(waihuianjin)trading.
Twotypesofbusinessinstitutionswere422BROOK.
J.
CORP.
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&COM.
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[Vol.
3allowedtoengageinforeignexchangefuturesanddeposittrading:financialinstitutionsthathadlicencestoengageinspotforeignexchangedealingsasanagentforclients,andjointventuressetupbysuchfinancialinstitutionsasaspecialforeignexchangefuturesbrokerfirm.
317Inbothcases,theentitywasrequiredtomeetcertainconditionstobeapprovedbytheStateAdministrationofForeignExchange.
318Sixcurrencieswereincludedasapplicablecurrencies.
319TradesweremadebyaforeignfuturesbrokerunderasignedagreementwiththeChinesefinancialinstitutionorjointventure.
320Theforeignfuturesbrokerwouldprovidemarketinformationandotherservices.
321Asinthecommodityfuturesmarket,illegalactivitiesandexcessivespeculationbecameaseriousproblemintheforeignexchangefuturesmarket.
Manyillegaltradinginstitutionsemerged,engaginginforeignexchangefuturesanddeposittradingwithoutauthorizationfromgovernmentregulators.
Enterpriseclientsandindividualclientssufferedincreasinglyseriouslosses,affectingthestabilityoffinancialorder.
322317.
SeeTheTrialMeasuresfortheAdmin.
ofForeignExch.
FuturesBus.
,supranote317,atArt.
3.
318.
TheTrialMeasuresfortheAdmin.
ofForeignExch.
FuturesBus.
,supranote317,atArts.
9&10.
Oneoftheconditions,forexample,wasthattheapplicantshouldhavenolessthan$7millionpaid-upcapitaloranequivalentamountofotherforeigncurrencies.
SeeTheTrialMeasuresfortheAdmin.
ofForeignExch.
FuturesBus.
,supranote317,atArt.
10(2).
319.
Theyweresterlingpound,deutschemark,Japaneseyen,Swissfranc,USdollar,andHKdollar.
SeeTheTrialMeasuresfortheAdmin.
ofForeignExch.
FuturesBus.
,supranote317,atArt.
6.
320.
TheTrialMeasuresfortheAdmin.
ofForeignExch.
FuturesBus.
,supranote317,atArt.
15.
321.
TheTrialMeasuresfortheAdmin.
ofForeignExch.
FuturesBus.
,supranote317,atArt.
16.
322.
SeeGuojiawaihuiguanlijuguanyujiaqiangwaihui(qihuo)jiaoyiguanlidetongzhi[NoticeoftheSt.
Admin.
ofForeignExch.
onStrengtheningForeignExch.
(Futures)Trading](promulgatedbytheSt.
Admin.
ofForeignExch.
,Apr.
21,1993),availableathttp://china.
findlaw.
cn/fagui/ms/23/35600.
html(lastvisitedMay18,2009)(P.
R.
C.
).
Intheintroduction,theCircularpointedoutthat:[T]heseillegaltradingfirmsoperateunderconfusingfeestructuresandchaoticmanagement,someevendefraudtheirclients,causingincreasinglydamaginglossestoclients,whichcompriseofinstitutionsandindividuals.
Anumberofclientswhoweredefraudedandsufferedseriouslosseswroteletterstorelevantgovernmentalagenciestocomplain,andrequestedcompensationforthelosses.
Thissituationhasaffectedthestabilityofthedomesticfinancialmarkets.
Id.
Thispromptedthegovernmenttoembarkonacampaigntocrackdownonillegalactivitiesintheforeignexchangefuturesmarket.
BetweenOctober1994andJune1997,aseriesofgovernmentnoticeswereissued,includingtheNoticeonSternlyInvestigatingandDealingwithIllegalTradingActivitiesinForeignExchangeFuturesandForeignExchangeDeposit2009]TheFuturesMarketinChina423Trading.
323Thesegovernmentnoticessuspendedthetrialofforeignexchangefuturesanddeposittradingforanindefinitetime.
324Themaindisputesarisingfromthetradingofforeignexchangefuturesordepositsinvolvedenterpriseclientsorindividualclientsandfinancialinstitutionsorjointventuresactingastheagents.
Clientslostmoneyinfuturestradingwhenagentsconductingthetradingviolatedforeignexchangeregulations.
InHeWeiv.
ChangchunInvestmentConsultancyCentreofJilinProvinceJinhuiInternationalInvestmentandDevelopmentCo.
LtdandJilinBranchofBankofChina,theplaintifflost84,500yuanwhiletradingforeignexchangedeposits.
325Thedefendantsdidnothaveauthorizationtoengageinforeignexchangefuturesbusiness.
326InYangLiminv.
XinjiangOlympicDevelopmentGeneralCompany,anotherplaintifflost316,000yuanwhiletradingforeignexchangedeposits;327again,thedefendantwasnotapprovedtoengageinforeignexchangefuturesbusinessasanagentactingonbehalfofclients.
328Inbothcases,thepeople'scourtsannulledtheparties'signedagreementsonthegroundsthatthedefendantslackedauthorizationtoengageinforeignexchangefuturesbusinessandtoactonbehalfofclients.
329Thefundamentalissueinthesecaseswaswhethertheclientsshouldbecompensatedwiththeirlossesbythedefendantsunderthesecircumstances.
Thecourtsreferredtothe1995SPCFuturesJudicialGuidelinesanddistinguishedbetweenlosseswhichhadadirectcausallinktotheclients'instructionsandlosseswhichwerelinkedtothedefendants'actions.
Plaintiffscouldnotrecoverfromthedefendantsintheformerinstance,butcouldrecoverinthelatterinstance.
InHeWei,330323.
TheNoticeonSternlyInvestigating&DealingwithIllegalTradingActivitiesinForeignExch.
Futures&ForeignExch.
DepositTrading,supranote29.
324.
SeeTheNoticeontheSummaryoftheMeetingImplementingtheNoticeonSternlyInvestigating&DealingwithIllegalTradingActivitiesinForeignExch.
Futures&ForeignExch.
DepositTrading,supranote29.
325.
SeeDianxinganlipingshujifalloudongbuchong[COMMENTARYONTYPICALCASESANDCOMPLEMENTTOLEGALDEFICIENCY]446(CaiZhangetal.
eds.
,ThePeople'sCourtPublishingHouse,2002)(discussingHeWeiv.
ChangchunInv.
ConsultancyCtr.
ofJilinProvince)[hereinafterCOMMENTARYONTYPICALCASESANDCOMPLEMENTTOLEGALDEFICIENCY].
326.
SeeCOMMENTARYONTYPICALCASESANDCOMPLEMENTTOLEGALDEFICIENCY,supranote326,at453(discussingHeWeiv.
ChangchunInv.
ConsultancyCtr.
ofJilinProvince).
327.
SeeZhongguoshenpananliyaolan[ESSENTIALSELECTIONOFADJUDICATEDCASESINCHINA:CIVILADJUDICATEDCASES]433(Nat'lJudgesCollegeandSch.
ofLawofthePeople'sUniv.
ofChinaeds.
,ChinaPeople'sUniv.
PressVol.
2001,2002)[hereinafterESSENTIALSELECTIONOFADJUDICATEDCASESINCHINA:CIVILADJUDICATEDCASES].
328.
SeeESSENTIALSELECTIONOFADJUDICATEDCASESINCHINA:CIVILADJUDICATEDCASES,supranote328,at435.
329.
ESSENTIALSELECTIONOFADJUDICATEDCASESINCHINA:CIVILADJUDICATEDCASES,supranote328,at434.
330.
SeeCOMMENTARYONTYPICALCASESANDCOMPLEMENTTOLEGALDEFICIENCY,supranote326,at445–55(discussingHeWeiv.
ChangchunInv.
ConsultancyCtr.
ofJilinProvince).
lossessufferedbytheplaintiffwerearesultoftheplaintiff'sorderasexecutedbythedefendants;therefore,theplaintiffshouldbearthoselosses.
However,theCourtalso424BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3establishedthatthedefendantsprovidedtheplaintiffwithincorrecttradingreceiptsasaresultofcarelessnessbyitsstaffmember,whichmisledtheplaintiff,andthereforedefendantboresomeresponsibility.
331Furthermore,therewereotherfactorsinthecourseofdefendant'stransactionwiththeplaintiffthatcontributedtothelosses.
332Basedonthesefindings,theCourtruledthatthedefendantsshouldbearcertainlimitedliabilitiesforthelosses.
333InYangLimin,thedefendantprovedthatithadexecutedtheordersaccordingtotheplaintiff'sinstructions,andthereforetheplaintiff'slosswasdirectlycausedbyherinstructions.
334Eventhoughthedefendantwasoperatingaforeignexchangefuturesbusinessillegally,thelackofcausationtotheplaintiff'slossshieldedhimfromliability.
TheWuluMuqiIntermediatePeople'sCourt,infollowingthe1995SPCFuturesJudicialGuidelines,rejectedtheplaintiff'sclaimforcompensation,reasoningthatthelosssufferedbytheplaintiffwasduetoanormaltradingrisk.
335HeWeispurreddifferentviewsregardingthelegalconsequencesofaninvalidagreementbetweentheplaintiffanddefendant.
Accordingtothefirstview,theplaintiff'slossofdepositsshouldbereturnedtohim.
336Ifthedefendanthadnoauthorizationtoactforitsclientsintheforeignexchangefuturesbusiness,thenthebrokerageagreementwasinvalidandtheplaintiffshouldberestoredtohisstatusbeforeenteringintotheagreement.
337Thesecondviewarguesthatthedefendantisresponsiblefortheinvalidagreementandtheplaintiffhasnofaultintheprocess.
Therefore,thelossshouldbebornebythedefendant.
338Thethirdviewarguesthatthelossshouldbeborneaccordingtothefaultofeachparty;ifbothareatfault,theagreementshouldbedeterminednullandvoid.
339Thefourthviewnotesthatthedefendantlacksauthorizationtoactfortheplaintiffinforeignexchangefuturestrading,butassertsthatifthedefendantexecutedtheorderinaccordancewiththeplaintiff'sinstructions,thentheplaintiffshouldbearthelosscausedbyanymarketrisks.
340331.
Id.
at453.
332.
Theplaintiff'sdesignatedbrokerfromthedefendantJinhuiInternationalInvestment&DevelopmentCo.
,continuedtonotifytheplaintiffdemandingadditionaldepositsevenafterthedefendantJinhui,knowingthatitsinvolvementintradingoffuturesexchangedepositwasillegal,cancelledthecontractwiththeplaintiff.
Id.
333.
Id.
at453.
334.
SeeESSENTIALSELECTIONOFADJUDICATEDCASESINCHINA:CIVILADJUDICATEDCASESsupranote328,at434(discussingYangLiminv.
XinjiangOlympicDev.
GeneralCompany).
335.
Id.
336.
SeeCOMMENTARYONTYPICALCASESANDCOMPLEMENTTOLEGALDEFICIENCY,supranote326,at454(discussingHeWeiv.
ChangchunInv.
ConsultancyCtr.
ofJilinProvince).
337.
Id.
338.
Id.
339.
Id.
340.
Id.
at455.
Therefore,illegaltradingbythe2009]TheFuturesMarketinChina425defendantwithoutauthorizationwouldbeanindirectcauseandthedefendantshouldnotbeheldliablefortheloss.
341Aspartofgovernmenteffortstolimitillegalactivitiesandexcessivespeculationinthefuturesmarket,offshoretradingoffuturescontracts,includingfinancialfuturesproducts,washaltedinlate1994.
Thislastviewwastheoneadoptedbythepeople'scourtsandisconsistentwiththe1995SPCFuturesJudicialGuidelines.
342Whenclientslostmoneyinoffshorefinancialfuturesproductstrading,disputesinthepeople'scourtsincreased,particularlyconcerningtherelevanceofthelackofauthorizationtotrade.
343InQingyuanCityOverseasChineseCommodityCompanyv.
QingyuanCityTongyeInternationalFuturesTradingFirm,theplaintifflostapproximatelytwomillionyuanwhiletradingdefendant'svariouscommodityandfinancialfuturesproductsontheChicagoMercantileExchange,includingStandardandPoor's500Indexfutures.
344Thedefendantwasneitherapprovednorregisteredtoengageinthetradingofoffshorefuturesproducts.
345TheCourtannulledtheagreementsignedbetweenthepartiesandorderedthedefendanttoreturntheplaintiff'sdeposit.
346However,theCourtrejectedtheplaintiff'sclaimforfurtherlossesapartfromthedeposit,reasoningthatfurtherlossesshouldbebornebytheplaintiffbecausetheplaintiffcouldhavemitigatedthelosses.
347Withregardtoplaintiff'sadditionalclaimsofaninvalidcontractfortradingofoffshorefinancialfuturesproducts,thecourtruledthattheliabilitiesmustbedividedbetweenthepartiesinaccordancewithgeneralprinciplesoflaw,regulationandthejudicialguidelinesappliedinothertypesoffuturesdisputes.
348Tradingofgovernmentbondfutureswasalsoapartofthefinancialfuturesmarketintheearly1990s.
349341.
Id.
342.
SeeTheNoticeonRelevantIssuesaboutCancellationbyFuturesBrokerFirmsofOffshoreFuturesBus.
,supranote31.
343.
SeeTheNoticeonSternlyInvestigatingandDealingwithIllegalTradingActivitiesinForeignExch.
FuturesandForeignExch.
DepositTrading,supranote29("Theseillegaltradingactivities,.
.
.
resultedinalargenumberofeconomicdisputes,.
.
.
acontinuousincreaseofcomplaints.
").
344.
SeeEXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW,supranote141,at241(discussingQingyuanCityOverseasChineseCommodityCo.
v.
QingyuanCityTongyeInt'lFuturesTradingFirm).
345.
SeeEXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW,supranote141,at243.
346.
Id.
at242.
347.
Id.
at243.
348.
Id.
349.
OnDecember2,1992,theShanghaiStockExchangeintroducedtwelvegovernmentbondfuturesproducts,beginningatrialrunofgovernmentbondfuturestrading.
Forabriefhistoryofthegovernmentbondfuturesmarketinearly1990s,seeLiYimei,Woguoguozhaiqihuolishihuigu[AHistoricalReviewofOurCountry'sGovernmentBondFutures],Hezuojingjiyukeji[CO-OPERATIVEECONOMY&SCIENCE],Issue341at66–68(Mar.
2008)[hereinafterCO-OPERATIVEECONOMY&SCIENCE].
InFebruary1995,theCSRCandthe426BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3MinistryofFinancejointlyissuedtheProvisionalMeasuresontheAdministrationofGovernmentBondFuturesTrading,350whichsetforthqualificationsofgovernmentbondfuturesexchangesandregulationsformemberfirms,tradingrules,andmanagementofmemberfirms.
Yetatthesametimegovernmentbondfuturestradingwasdominatedbymarketmanipulation.
InFebruary1995,ShanghaiWanguoInternationalSecurities,thesecondlargestsecuritiesfirminChinaatthattime,"wilfullyviolatedtradingrulesbyriggingprices"andsellinggovernmentbondfuturesonalargescaletocoverpositionsinexcessofpermittedlimits.
351Shortlyafterthisincident,theCSRCissuedanurgentnoticeimmediatelypreventingallfuturesexchangesfromallowingmemberstoopenanynewpositionsandalsorequiringexistingpositionstobeclosedoutbytheendofMay31,1995.
352TheCSRCgavethreereasonsforclosingthegovernmentbondfuturesmarket.
353First,severalseriousregulatoryviolationshadoccurredingovernmentbondfuturestradinginthepriorfewmonths,bringingaboutseriousadverseeffectsinsideandoutsideofChina.
354Second,China'sbasiceconomicconditionswerenotreadyforthedevelopmentofagovernmentbondfuturestradingmarket.
355Third,theclosurewasnecessarytomaintaineconomicandsocialstability,andtoprotecthealthydevelopmentofthefinancialmarket.
356350.
Guozhaiqihuojiaoyiguanlizanxingbanfa[ProvisionalMeasuresontheAdmin.
ofGov'tBondFuturesTrading](promulgatedbytheChinaSec.
RegulatoryComm'n&theMinistryofFin.
,Feb.
23,1995),availableatISINOLAW(lastvisitedMay18,2009)(P.
R.
C.
).
351.
Formoredetails,seeSECURITIESREGULATIONINCHINA,supranote68,at121.
352.
TheUrgentNoticeonSuspensionofTrialsofGov'tBondFuturesTrading,supranote30.
353.
TheUrgentNoticeonSuspensionofTrialsofGov'tBondFuturesTrading,supranote30.
354.
TheUrgentNoticeonSuspensionofTrialsofGov'tBondFuturesTrading,supranote30.
355.
TheUrgentNoticeonSuspensionofTrialsofGov'tBondFuturesTrading,supranote30.
356.
TheUrgentNoticeonSuspensionofTrialsofGov'tBondFuturesTrading,supranote30.
TheCircularorderedtheclosureofthegovernmentbondfuturesmarket.
Thedecisionwaspromptedbyseveralseriousregulatoryviolationsthathadoccurredinthegovernmentbondfuturesmarket,whichcausedsignificantconcernonthepartofthegovernmentregardingtheadverseeffectstheviolationshadonthestabilityofthecountry'sfinancialorder,thebroadeconomicandsocialstability,andtheinternationalimageofChina.
Examiningthebiggerpictureatthattime,thegovernment'sdecisiontoclosedownthegovernmentbondfuturesmarketwasunderstandable;in1995,Chinalackedthenecessaryconditionsforaproperfinancialfuturesmarket.
TheCircularoftheStateCouncilonFurtherStrengtheningMacro-administrationofSecuritiesMarket(Guowuyuanguanyujinyibujiaqiangzhengquanshichanghongguanguanlidetongzhi),issuedonDecember17,1992,statedthat"thelegal,regulatoryandsupervisorysystemsforChina'ssecuritiesmarketwerenotfullyestablished;therewasalackofexperiencesofoperatingthesecuritiesmarket;andinvestorshadnonecessaryawarenessofthemarketrisks.
"TheNoticeoftheSt.
CouncilonFurtherStrengtheningMacro-administrationoftheSec.
Mkt.
,supranote52.
IntheCircularoftheStateCouncilonFirmlyStoppingBlindDevelopmentoftheFuturesMarket(Guowuyuanguanyujianjuezhizhiqihuoshichangmangmufazhandetongzhi),issuedbytheStateCouncilonNovember14,1993,thegovernmentemphasizedthat"afuturesmarket,asanadvancedformofmarketdevelopment,hashighpotentialforriskandspeculation,thereforerequiringasignificantlevelofregulation.
Inlightofthecountry'scurrentcircumstances,apartfromselectingafewkindsofcommoditiesandlocationsformarkettrials,thefuturesmarketmustbestrictlycontrolledandcannotbedevelopedblindly.
"TheNoticeoftheSt.
CouncilonFirmlyStoppingBlindDev.
oftheFuturesMkt.
,supranote4.
Thebrevity2009]TheFuturesMarketinChina427ofthisCSRCnoticestronglysuggeststheurgencyfortheclosureofthegovernmentbondfuturesmarketatthattime.
TheclosurewaspromptedbyaseriesofseriousregulatoryviolationsthatoccurredinthegovernmentbondfuturesmarketbetweenFebruaryandMay1995.
357Thegovernmentwasconcernedabouttheadverseeffectsthoseviolationshadonthecountry'seconomic,financialandsocialstability,andtheeffectontheoutsideworld'sperceptionofChinaasacommerciallyopenandeconomicallyreformedcountry.
358Besidestheseconcerns,therewereotherreasonscontributingtothegovernment'sdecisiontoclosedownthegovernmentbondfuturesmarket.
Inthe1992NoticeoftheStateCouncilonFurtherStrengtheningMacro-administrationofSecuritiesMarket359thegovernmentnotedthatalegal,regulatoryandsupervisorysystemforChina'ssecuritiesmarketwasnotfullyestablished;360therewasinsufficientexperiencetooperatethesecuritiesmarket361andinvestorsdidnothavefullawarenessoftherisksinvolved.
362In1993,thegovernmentagainemphasizedthatthefuturesmarketmustbestrictlycontrolledandcannotbedevelopedblindly.
363In2005,tenyearsafteritsclosure,governmentbondfuturestradingandfinancialbondfuturestradingresumedontheinter-bankbondmarket.
364In2006,theestablishmentoftheCFFEXmarkedanewstageintheprocessofformalizationandstandardizationofChina'sfinancialfuturesmarketandfinancialfuturestrading.
365357.
ForareviewoftheeventsthathappenedbetweenFebruaryandMay1995inthegovernmentbondfuturesmarket,seeCO-OPERATIVEECONOMY&SCIENCE,supranote350,at66–68(Mar.
2008);QiaoLiang,"2.
23"Guozhaiqihuoshijianhuigu[AReviewofthe"2.
23"EventinGovernmentBondFutures],Zhongguotouziyujianshe[CHINAINVESTMENTANDCONSTRUCTION],Issue2at45–47(1997).
358.
TheUrgentNoticeonSuspensionofTrialsofGov'tBondFuturesTrading,supranote30.
359.
TheNoticeoftheSt.
CouncilonFurtherStrengtheningMacro-administrationoftheSec.
Mkt,supranote52.
360.
TheNoticeoftheSt.
CouncilonFurtherStrengtheningMacro-administrationoftheSec.
Mkt.
,supranote52.
361.
TheNoticeoftheSt.
CouncilonFurtherStrengtheningMacro-administrationoftheSec.
Mkt.
,supranote52.
362.
TheNoticeoftheSt.
CouncilonFurtherStrengtheningMacro-administrationoftheSec.
Mkt.
,supranote52.
363.
SeeTheNoticeoftheSt.
CouncilonFirmlyStoppingBlindDev.
oftheFuturesMkt.
,supranote4.
364.
Regulationsfortheinter-bankbondmarketwereenactedin2005.
SeeTheProvisionsontheAdmin.
ofBondFuturesTradingonNat'lInter-bankBondMkt.
,supranote54.
365.
TheestablishmentoftheCFFEXanditssignificancewaswidelyreportedandcommentedoninChinesemedia.
See,forexample,ShiJianhua,Guzhiqihuojiangkaichuangzhongguojinrongxinshidai[ShareIndexFuturesWillOpenupaNewEraofChina'sFinance]inZhengquanribao[SECURITIESDAILY],Dec.
21,2007,availableathttp://cnstock.
xinhuanet.
com/stockindex/2007-12/21/content_2875419.
htm(commentingonthesignificanceoftheestablishmentoftheCFFEXandthelaunchofCSI300indexfuturescontract).
However,financialfuturestradingwasshutdownorsuspendedsoonafterwardsbyswiftgovernmentactions,primarily428BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3duetowidespreadillegaltradingandexcessivespeculation.
366X.
CONCLUSIONThegradualre-openingofthetradingmarketsinthe2000ssuggeststhatthetoughgovernmentactionsandregulationstakenin1990s,thougharguablyanexcessiveinterventionandinterruptiontothemarket,provednecessarytoaddresstheseriousnessoftheproblemsfacingthegovernmentregulators.
Chinamustunderstandhowtograduallybuildasoundandbalancedframeworkthatwillprudentlyregulateandsupervisethefinancialfuturesmarketandatthesametimewillpromoteaninnovativeandhealthyfinancialfuturesmarket.
However,becauseChina'sgovernmentpolicyandtightcontroloversecuritiesandfuturesmarkethasbeenthenorminpastdecades,muchremainstobeseenhowsuchagoalcanbeachievedsuccessfully.
TheemergenceandexpansionofacommodityandfinancialfuturesmarketinChinawitnessedaratherproblematicperiodinthe1990sinthewakeofChina'seconomicreformanddevelopment.
Themarketwasdominatedbymarketmanipulation,unauthorizedtradingbynumerousfuturesfirms,irregularitiesofvariouskindsandexcessivespeculation.
Incidentsinvolvingseriousmarketmanipulationinthegovernmentbondfuturesmarketwerethenorm.
367Thefuturesmarketwasa"biglitigationfamily,"generatingahighrateofdisputesandlitigation.
368China'slackofcoherentandcomprehensiveregulationofthecommodityandfinancialfuturesmarketinitsearlyyearscontributedtotheThegovernment'scampaignfrom1993to1999tostopsuchasituationandhalttheblinddevelopmentofChina'sfuturesmarketledtoasubstantialreductionoffuturesexchanges,thecancellationofcertainfuturesproducts,thesuspensionofoffshorefuturestradingandtheclosureofgovernmentbondfuturesmarket.
Arguably,thiscampaignandtheresultingregulationswereseriousandexcessiveinterventionsandinterruptionsinthemarket.
Fromthegovernment'spointofview,suchconditionswerenotconducivetoChina'sgrowthbeyondafewexperimentalfuturesproductsinalimitednumberoffuturesexchanges.
Giventheseriousnessoftheproblems,itsimpactonthefinancialmarket,onpublicconfidence,andontheeconomyasawhole,thegovernment'sactionsprovedtobenecessarytomaintainsocialstabilityandpublicconfidenceinthefragilefinancialmarket.
366.
SeeTheNoticeontheSummaryoftheMeetingImplementingtheNoticeonSternlyInvestigating&DealingwithIllegalTradingActivitiesinForeignExch.
Futures&ForeignExch.
DepositTrading,supranote29;TheNoticeonRelevantIssuesaboutCancellationbyFuturesBrokerFirmsofOffshoreFuturesBus.
,supranote31;TheUrgentNoticeonSuspensionofTrialsofGov'tBondFuturesTrading,supranote30.
367.
SECURITIESREGULATIONINCHINA,supranote68,at121.
368.
UNDERSTANDING&APPLICATIONOFTHE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURT,supranote75,atPreface,1.
2009]TheFuturesMarketinChina429frequencyofproblems.
The1999ProvisionalRegulationsandthefourimplementingrulesprovidedanimpetustothestandardizationofChina'snewfuturesmarket.
TheStateCouncil's2004Nine-pointOpinionpointedoutthefuturedirectionofreform:thewideningandsteadydevelopmentofChina'scapitalmarkettoincludethecommodityandfinancialfuturesmarket.
369Thepastadjudicationoffuturesdisputesexhibitedoneguidingprinciple:issuesshouldbedealtwithfairlytocorrectlybalanceandprotectthelawfulrightsandinterestsoftheparties.
Thepeople'scourtsplayedtheirpartbyidentifyingeachparty'sliabilityinthecasesinvolvingafirm'squalificationtoengageinfuturestrading,Therevised2007Regulationsfurtherimplementedrulesextendingthesecuritiesandfuturesregulatoryframeworkestablishedbythe1999ProvisionalRegulationsandthe2005SecuritiesLaw.
The2007RegulationsrepresentasteptowardbuildingabalancedregulatoryframeworkforChina'scommodityandfinancialfuturesmarket.
However,fulloperationoftheregulatorysystemunderthe2007Regulationsdependsuponfurtherdevelopmentofregulationandclarificationofopenprovisions.
Asaresult,theframeworkremainssubjecttouncertainandconfusedapplication.
370definingthecircumstanceswherebyfuturesexchangesorfuturesbrokerfirmsshouldbeliableforlossesinforcedliquidations,371andallocatingtheresponsibilityoffuturesexchangesandtherightsandobligationsoffuturesexchanges.
372Furthermore,thepeople'scourtsenforcedtheapplicableinternationalrulesandpracticesforoffshoretradingofcommoditiesorfinancialfutures.
373Thepeople'scourtsfacedisputesinvolvingnewanddifficultissuesconcerningeverystageoffuturestrading.
Itisnotsurprisingthatinearliercases,thepeople'scourtslackedjudicialguidelines,regulationsandrules,andwerecriticizedfortakingthewrongapproachorforfailingtounderstandthelegalrelationshipsinvolvedinfuturestrading.
374369.
SeveralOpinionsoftheSt.
CouncilonPromotingReform,Opening-up&SteadyDevelopmentofChina'sCapitalMkt.
,supranote51.
370.
See,forexample,ZhongyuanGrain&OilTradingCo.
v.
ZhumadianRegionYinfengCo.
,discussedsupraPartVandnote134.
371.
The2003SPCFuturesJudicialProvisions,supranote7,atArt.
39.
372.
SeeHainanZhongqingJiyeDev.
Ctr.
v.
SichuanPingyuanIndus.
Dev.
Co.
,discussedsupraPartsV,VIIIandnote276.
373.
SeeZhaoXiaomeiv.
NanjingJinzhongfuInt'lFuturesTradingCo.
,discussedsupraPartVIIandnote255.
Basedon374.
SeeEXPLANATIONANDANALYSISOFTYPICALCASESOFFINANCIALLAW,supranote141,at247–48.
Inmanyoftheearlycaseswhereafuturesbroker'squalificationtotradewasdisputed,thepeople'scourtsalwaysruledinfavoroftheclients,orderingthefuturesbrokerswhohadengagedininvalidtradingtoreturnlostdepositstotheclients.
Commentatorscriticizedthisapproachforthelackofcorrectunderstandingbysomepeople'scourtsofthelegalrelationshipbetweenthebroker,clientsandthecomplexitiesoffuturestrading.
SeealsoUNDERSTANDING&APPLICATIONOFTHE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURT,supranote75,at333(arguingthejudgmentoftheCourtofFirstInstanceinHainanZhongqingJiyeDev.
Centerv.
430BROOK.
J.
CORP.
FIN.
&COM.
L.
[Vol.
3the1986GPCLandbasicprinciplesofcontractlaw,the1995SPCFuturesJudicialGuidelinesformulatedacomprehensiveresponsetotheproblematicincreaseinfuturesdisputesinthepeople'sCourt.
Thereafter,the2003SPCFuturesJudicialProvisionsrepresentedaunifiedunderstandingandapproachtomajorcivillawissuesconcerningfuturesmarketanddisputeswithinthepeople'scourts,betweengovernmentregulatorsandinsidethefuturesbusinessindustry.
375China'semergingcommodityandfinancialfuturesmarkethaschangedsignificantlysincetheestablishmentofthefirstcommodityfuturesexchangeinZhengzhouinOctober1990,throughtheestablishmentoftheCFFEXinShanghaiinSeptember2006.
ThesechangesreflectedatransitioninestablishingChina'scommodityandfinancialfuturesmarketandaregulatoryframeworkthatalignedwithChina'soveralleconomic,legalandjudicialreform,andinparticular,thedevelopmentofChina'scapitalmarket.
China'scommodityandfinancialfuturesmarketintheearly1990sdemonstratedhowcrucialanappropriateandbalancedlegal,regulatoryandjudicialframeworkistoensuringahealthyandsustainabledevelopmentofcommodityandfinancialfuturesmarkets.
Despitepastgovernmentpolicyandthetightcontroloversecuritiesandfuturesmarkets,China'sregulatoryexperienceswillbeinstrumentaltoaccomplishingthisgoal.
Therecentregulatorydevelopmentsintherevised2007Regulations,suchastherelaxationofapreviousbanonfinancialinstitutionsengaginginfuturestrading,Thosejudicialguidelinesnowservetoguidethelocalpeople'scourtsintheiradjudicationofcommodityandfinancialfuturesmarketdisputes.
376suggestthatChinaismovingclosertobuildingawell-suitedandwell-balancedlegal,regulatoryandjudicialframeworkforitscommodityandfinancialfuturesexchangemarkets.
377SichuanPingyuanIndus.
Dev.
Co.
formanyreasons,includingbecausetheCourtconfusedthefuturesexchange'scivilliabilityforbreachofcontractwithitsadministrativeliability).
375.
SeeUNDERSTANDING&APPLICATIONOFTHE2003PROVISIONSOFTHESUPREMEPEOPLE'SCOURT,supranote75,at19.
376.
AsopposedtoArticle30ofthe1999ProvisionalRegulations,financialinstitutionsarenotincludedunderArticle26ofthe2007RegulationsontheAdministrationofFuturesTrading.
SeeThe1999ProvisionalRegulationsontheAdmin.
ofFuturesTrading,supranote32,atArt.
30;seealsoThe2007RegulationsontheAdmin.
ofFuturesTrading,supranote5,atArt.
26.
377.
FordiscussiononChina'ssecuritiesregulationandthestagesofdevelopmentsince1980s,seeSECURITIESREGULATIONINCHINA,supranote68.
SeealsoZHUSANZHU,SECURITIESDISPUTERESOLUTIONINCHINA(Aldershot,England;Burlington,AV,USA:Ashgate,2007).
Inparticular,seech.
1,TheLegal,RegulatoryandJudicialFramework,at7–41andch.
7,TheDevelopmentofSecuritiesDisputeResolutioninChina,at197–231.