To strengthen the supervision over futures companies and promote the steady and standardized development of futures companies, the China Securities Regulatory Commission (CSRC) has recently promulgated the “Regulations on Classification Supervision over Futures Companies (Trial) (Draft for Comment)” (hereinafter referred to as the “Regulations”). It hereby solicits public opinions on the Regulations.

With rapid development of the futures market in recent years, the business size of the futures companies has been expanded gradually, with their market influence emerging increasingly. Classification supervision over futures companies is one of the important arrangements for infrastructural system construction of China’s futures market as well as an embodiment of implementing the requirements in the nine opinions on promoting reform, opening and steady development of capital market made by the State Council and the laws and regulations on futures. The classification supervision, adopting different supervisory measures according to different risk statuses and market influence of futures companies, will benefit the rational allocation of supervision resources and the improvement of the effectiveness of supervision on futures companies. In addition, through classification supervision, futures companies’ compliance operation awareness may be strengthened, with their self-restraint systems in terms of corporate governance and internal control perfected. All this will contribute to the beneficial interaction between external supervision on futures companies and companies’ self-restraint, thus promoting the steady and healthy development of the futures industry.

According to the “Regulations”, the indices for classification evaluation of futures companies are classified into three types, namely indices for risk management capability, indices for market influence and indices for continuous compliance status. The indices for risk management capability, which include 33 indices under 6 types covering clients’ property protection, capital adequacy, corporate governance, internal control, information system security and information disclosure, attach great importance to the futures company’s compliance of the core supervision systems with regard to clients’ property protection and capital adequacy as well as the guarantee systems involving corporate governance and internal control. The indices for market influence mainly put the factors of representativeness of indices and accessibility and difference of data into consideration, with the 3 detailed indices being the total daily average clients’ equity, the profitability of brokerage business and the net profit. A futures company’s continuous compliance status is mainly evaluated with reference to the violations made by it, the disciplinary punishments imposed by the self-regulatory organization of futures industry, the supervisory measures and administrative penalties taken by the CSRC and its agencies, or the criminal punishment adopted by the judicial authority within the evaluation period. The base score for a normally-run futures company is 100 points. The futures company’s evaluation score will be worked out by adding bonus points to or deducting points from the base score in accordance with the futures company’s points gained or lost in terms of the aforesaid evaluation indices.

To ensure the creditability and authority of classification supervision, the Regulations specify that the CSRC establishes the Review Committee for Classification Supervision (the Review Committee) to review the classification of futures companies, which will be put into force upon confirmation of the CSRC. According to the Regulations, futures companies will be classified into 5 classes with 11 grades, namely AAA, AA, A, BBB, BB, B, CCC, CC, C, D and E, according to their evaluation scores. With regard to the use of the classification result, the CSRC will make different arrangements for different classes of futures companies in terms of allocation of supervision resources and frequencies of on-and-off-the-spot inspection. Futures companies’ classification results is not only a prudent precondition for their applications for adding business variety and establishing new business offices but also a basis for the CSRC to determine the pilot scope of new business and the payment proportions of the China Futures Investor Protection Funds.

The CSRC will make further amendment and perfection to the Regulations according to the opinions brought forward by all circles of society before its promulgation. The first classification evaluation on futures companies will be initiated upon the promulgation and implementation of the Regulations.