"The biggest highlight of this newly revised financial derivative business management system is to further emphasize the essence and principles of hedging." Wang Tao, a professor at Shanghai Institute of Advanced Finance, Shanghai Jiaotong University, said in an interview. The Notice makes it clear that the annual hedging scale of commodity derivative business does not exceed 90% of the annual physical business scale, and the annual hedging scale of financial derivative business for commodity trade does not exceed 80% of the annual physical business scale. The scale of the net position at the time point shall not exceed the risk exposure of the corresponding physical goods.
Recently, the State-owned Assets Supervision and Administration Commission of the State Council issued the Notice on Strengthening the Management of Financial Derivatives (hereinafter referred to as the Notice), which integrated and revised the original supervision system of financial derivatives. The Notice strictly controls "entrance", "scale" and "operation", further clarifies the main responsibilities at all levels, further clarifies business principles, further standardizes operational procedures, and further strengthens supervision and inspection.
The financial derivative business referred to in the Notice mainly includes the commodity derivative business engaged by central enterprises at home and abroad, and refers to the financial derivative business with commodities as the underlying assets, including commodity futures and options; And currency derivative business refers to financial derivative business with currency or interest rate as the underlying assets, including forward contracts, futures, options and swaps.
Enhance the anti-risk ability of state-owned enterprises
It is understood that in recent years, central enterprises have effectively used the hedging function of financial derivatives to hedge the risk of fluctuations in commodity prices and interest rates and exchange rates, which has played a positive role in stabilizing production and operation. However, during the supervision, we also found that some enterprises have some problems, such as inadequate group control, lax business approval, irregular operating procedures, speculative incentives and untimely, inaccurate and incomplete business reports. At the same time, in recent years, with the central enterprises speeding up the pace of "going out" and actively expanding international business, the demand for using financial derivatives to hedge the risk of fluctuations in commodity prices, interest rates and exchange rates has increased, and some new situations and changes have occurred in developing financial derivatives business. The current regulatory system can no longer fully meet the actual business needs of enterprises.
In order to implement the spirit of the Fourth Plenary Session of the 19th Central Committee of the Communist Party of China on "enhancing the ability of the state-owned economy to resist risks", urge central enterprises to effectively strengthen the management of financial derivatives business and establish a financial derivatives business supervision system with "strict control, standardized operation and controllable risks", the SASAC has integrated and revised the existing supervision system on the basis of extensively soliciting opinions from central enterprises and relevant regulatory authorities, and studied and formulated this Notice.
Jacky Jiang, member of Chinese People’s Political Consultative Conference and former vice chairman of China Securities Regulatory Commission, said in an interview that derivatives are an essential means to manage risks, and leading enterprises in the world generally use derivatives to achieve the goal of steady operation. Regulators have always supported the majority of enterprises, including state-owned enterprises, to make good use of derivative products. The Notice once again reflects the attitude of supporting central enterprises to use derivative products, and further compacts the main responsibility of enterprises, emphasizing strict adherence to the principle of hedging and strengthening risk management and control.
Classification management of six major changes
Specifically, the Notice includes six parts, covering key links before, during and after the event. The relevant person in charge of the State-owned Assets Supervision and Administration Commission said in an interview that the changes in this Notice compared with the original system are mainly reflected in the following six aspects:
The first is to implement the management and control responsibilities of each subject. Further clarify the responsibilities of the group’s board of directors, management, functional departments and operators, establish and improve a three-level management system, and strictly control business. The "Notice" clarifies that subsidiaries with asset-liability ratio higher than the control line of the SASAC, operating losses for three consecutive years and tight funds are not allowed to carry out financial derivative business.
The second is to strengthen the principle of hedging. On the basis of insisting that the variety of transactions is related to the main business and that the trading time, scale and direction match the real goods, the essence and principle of hedging are further emphasized, that is, speculative trading is prohibited for the purpose of reducing the risk exposure of the real goods; By increasing the total amount and time scale, we will prevent super-scale transactions; By requiring the establishment of scientific incentive and restraint and comprehensive evaluation mechanism of business effect, we can prevent speculative behavior caused by unilateral pursuit of unilateral profit of financial derivative business.
Among them, in terms of trading time, the "Notice" clarifies that the holding time should generally not exceed 12 months or the time stipulated in the physical goods contract, and it is not allowed to blindly engage in long-term business or extension.
In terms of transaction scale, the Notice makes it clear that the annual hedging scale of commodity derivative business does not exceed 90% of the annual physical business scale, and the annual hedging scale of financial derivative business for commodity trade does not exceed 80% of the annual physical business scale. The scale of the net position at the time point shall not exceed the risk exposure of the corresponding physical goods. The scale and duration of monetary derivative business should be within the scope of capital demand contract, and in principle, it should correspond to the capital demand contract one by one.
In terms of incentives and constraints, the Notice requires that the profit and loss of financial derivatives should be comprehensively evaluated with the profit and loss of real goods, and the hedging effect of the business should be objectively evaluated. Performance appraisal and salary incentives should not be simply linked with the unilateral profit and loss of financial derivatives to prevent one-sided emphasis on the unilateral profit of financial derivatives from leading to speculation.
The third is to implement classified control. In view of the different characteristics and risk levels of currency and commodity derivative businesses, the Notice treats them differently in terms of business scale, post setting and information system, which not only reflects strict supervision, but also fits the actual situation of enterprises.
The fourth is to refine the risk management and control requirements. In terms of monitoring means, increase the requirements for establishing information systems, realize online monitoring, and solidify system regulations; In the aspect of risk early warning, it is required to identify all kinds of risks in time by quantitative and qualitative methods; In terms of emergency treatment, clear treatment requirements and properly respond.
The fifth is to strictly control the operation of key nodes. Adhere to the principle of separating the front, middle and back office, and strictly manage compliance; Emphasize the requirements of authorization and approval, and strictly guard against ultra vires and illegal operations; Increase margin control requirements, standardize the use of funds and prevent fund risks; Establish daily risk management report, monthly departmental check and quarterly communication mechanism for management to strengthen business dynamic management.
Sixth, strengthen supervision and inspection. The Notice details the principle requirements of audit supervision, and clarifies the supervision and inspection responsibilities and key points of the centralized management department and internal audit department of the Group.
So, what regulatory measures will SASAC take? The person in charge said that the supervision of SASAC still focuses on the follow-up monitoring and post supervision inspection, urging enterprises to strengthen risk management and control. First, in daily work, establish a regular reporting system, requiring enterprises to report their business development quarterly and annually, and require special reports within 24 hours for major issues. Second, serious accountability and accountability. For problems such as major loss risk and serious impact, points will be deducted or downgraded in performance appraisal, and accountability will be carried out according to the management authority of cadres. Third, in conjunction with relevant departments, through regular meetings, information sharing, joint inspections, etc., we will form a joint force of supervision and enhance the professionalism of supervision.
Emphasize the principle of spot matching
"The biggest highlight of this newly revised financial derivative business management system is to further emphasize the essence and principles of hedging." Wang Tao, a professor at Shanghai Institute of Advanced Finance, Shanghai Jiaotong University, said in an interview that the financial derivative business should strictly abide by the principle of hedging, with the purpose of reducing the risk exposure of physical goods, which should be matched with the variety, scale, direction and term of physical goods. The purpose of "reducing the risk exposure of physical goods" is an accurate grasp of the essence of hedging and grasps the essence. No matter how the specific performance of various actual transactions changes, there is a basis for proper supervision.
Enterprises use the increasingly mature derivatives market to carry out hedging and manage the risks of commodities, exchange rates and interest rates encountered in production and operation, so as to avoid various risks in production and operation. Its core is to offset the physical exposure through derivative exposure. Once the exposure is reduced, the impact of the corresponding raw materials, interest rate and exchange rate fluctuations will be reduced, thus achieving the purpose of controlling risks. Therefore, reducing the risk exposure of physical goods is the essence of hedging. After grasping the essence of hedging business, it can help to distinguish the specific judgment of "matching with the variety, scale, direction and term of the real goods", which not only strictly requires hedging, but also is pragmatic and flexible to various complicated actual situations, which can make enterprises have a reasonable basis in actual operation.
In Wang Tao’s view, this is an important development in China’s supervision of derivatives business, which will help China enterprises to better use derivatives tools for hedging, and more escort various real hedging transactions, while strictly controlling risks and preventing speculation in essence, with far-reaching significance and influence.
You Long, general manager of the Risk Control Department of COFCO, also believes that the Notice is advanced in concept, emphasizing the principle of matching futures and spot, emphasizing the integrated management of futures and spot, adopting information-based management and control methods, and strengthening the quantitative and qualitative identification of different risks, which will effectively guide central enterprises to improve their risk management systems and rationally use financial derivatives to avoid market risks.
Original text transferred from: shanghai securities news
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