The State-owned Assets Supervision and Administration Commission of the State Council issued the Notice on Strengthening the Management of Financial Derivatives Business.

No.8 [2020] of the State-owned Assets Enrichment Appraisal Regulation

Central enterprises:

In recent years, according to the regulatory requirements, central enterprises have prudently carried out financial derivatives business, strengthened business supervision and management, effectively used the hedging function of financial derivatives, and hedged 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. In order to urge the central enterprises to effectively strengthen the management of financial derivative business and establish a financial derivative business supervision system with "strict control, standardized operation and controllable risks", relevant matters are hereby notified as follows:

The financial derivative business referred to in this Notice mainly includes the commodity derivative business (referring to the financial derivative business with commodities as the underlying assets, including commodity futures and options) and currency derivative business (referring to the financial derivative business with currencies or interest rates as the underlying assets, including forward contracts, futures, options and swaps) that central enterprises engage in at home and abroad. Financial derivative business is leveraged, complex and risky. All central enterprises should earnestly enhance their risk awareness, strengthen group management and control, establish and improve a unified management system, strictly examine and approve business, and implement regulatory responsibilities.

(1) Adhere to the principle of specialized centralized management, and in principle, similar financial derivative businesses within the Group will be operated centrally by a unified platform. The board of directors of the Group is responsible for approving the business qualifications of subsidiaries (hereinafter referred to as operating entities) that specifically carry out financial derivative business, and the Group is responsible for approving the annual business plan. Sub-enterprises with asset-liability ratio higher than the control line of SASAC, operating losses for three consecutive years and tight funds may not carry out financial derivative business.

(II) When approving business qualifications, the board of directors of the Group shall fully demonstrate the objective needs and necessity of business development, strictly examine and evaluate the soundness and effectiveness of business management system and risk management mechanism, as well as the rationality of institutional setup and professional competence of personnel. The approval items shall specify the trading place, varieties and tools. When the approved items are changed, they shall be re-approved by the board of directors of the Group. The risk management committee under the board of directors or the professional committee responsible for risk management shall put forward clear audit opinions on the approval of business qualifications, which shall be the necessary elements for submission to the board of directors for decision. The business qualification approved by the board of directors of the Group shall be reported to the SASAC for the record in a timely manner.

(III) When examining and approving the annual business plan, the Group should carefully examine the physical goods scale, hedging scale, hedging strategy, capital occupation scale, stop loss limit (or loss warning line) and other contents, and strictly examine and evaluate the off-exchange business.

(4) The Group shall specify the person in charge of the financial derivative business, designate the centralized management department, and implement the supervision responsibilities of relevant departments. The risk management department is responsible for business risk monitoring; The financial department is responsible for the monitoring of funds, especially the deposit; The legal department is responsible for the legal risk assessment of the contract text; The audit department is responsible for regular audit supervision.

To carry out financial derivative business, we should strictly abide by the principle of hedging, aim at reducing the risk exposure of the real goods, match the variety, scale, direction and duration of the real goods, and adapt to the financial strength and transaction processing ability of the enterprise, and must not carry out any form of speculative transactions.

(a) the variety of transactions shall be closely related to the main business operation and shall not exceed the prescribed business scope. Trading tools should have simple structure, strong liquidity and recognizable risks. Generally speaking, the holding time shall not exceed 12 months or the time stipulated in the physical goods contract, and shall not blindly engage in long-term business or extension.

(2) The annual hedging scale of commodity derivative business shall not exceed 90% of the annual physical business scale, and the annual hedging scale of financial derivative business for commodity trade shall 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. To implement variety classification management, the scale indicators of different subsidiaries and different trading varieties shall not be borrowed from each other or used together. The establishment, adjustment and cancellation of hedging correspondence should meet the actual needs of production and operation and avoid frequent short-term transactions.

(3) The scale and duration of the currency derivative business shall be within the scope of the capital demand contract, and in principle, it shall correspond to the capital demand contract one by one.

(4) Enterprises that have started new business or suffered heavy losses due to illegal operations in previous years shall carefully set the business scale and appropriately compress and control it.

(5) Establish a scientific and reasonable incentive and restraint mechanism, comprehensively judge the profit and loss of financial derivative business and the profit and loss of physical goods, objectively evaluate the hedging effect of business, and do not simply link performance appraisal and salary incentives with the unilateral profit and loss of financial derivative business to prevent one-sided emphasis on the unilateral profit of financial derivative business from leading to speculation.

Establish an effective financial derivative business risk management system, improve the internal control mechanism, improve the information system, strengthen risk early warning, and cover all aspects of pre-prevention, in-process monitoring and post-treatment.

(1) The Group shall formulate a financial derivative business management system, specifying the responsibilities of relevant departments, business approval procedures, risk management requirements, stop loss limit (or loss warning line), emergency handling, supervision and inspection, and accountability. The operating entity shall formulate a special business operation manual or compliance manual.

(2) The Group shall establish a vertical risk management system for financial derivatives business, and the risk management department of the operating entity shall independently report risks or irregularities to the Group.

(3) The Group shall monitor business risks through information means such as risk management information system, and realize comprehensive coverage and online monitoring. Operators of commodity derivative business should establish and improve business information system, accurately record and transmit all kinds of transaction information, solidify system requirements, standardize operation procedures and block illegal operations.

(4) The Group and the operating entities shall establish a risk early warning and disposal mechanism, adopt quantitative and qualitative methods to identify market risks, credit risks, operational risks and liquidity risks in a timely manner, and clarify the disposal authority and procedures for different types and degrees of risks.

(5) In case of major risks, it is necessary to start the risk emergency handling mechanism in time, set up a special working organization, formulate a detailed disposal plan, properly do a good job in position stop loss, legal dispute case handling, public opinion response, etc., and establish a daily or weekly report system to prevent the risk from expanding and spreading.

Operators should strengthen the implementation of internal control, strictly manage compliance, and standardize authorization approval, transaction operation, fund use and regular reporting.

(1) Set up independent risk management departments, trading departments and financial departments, and strictly implement the principle of separation of posts and personnel in front, middle and back offices. Establish regular rotation and training system. Enterprises that only carry out currency derivative business with low frequency and small business scale may not set up separate risk management departments and trading departments, but the principle of separation of incompatible posts and personnel must be strictly implemented.

(2) The board of directors or similar decision-making body of this enterprise is responsible for the examination and approval of transaction authorization. Authorization shall specify the list of persons with trading authority, trading varieties and quotas. When the responsibilities of personnel change, the authorization shall be suspended or re-authorized in time. It is strictly forbidden for the person in charge of the enterprise to directly trade.

(three) the trading department shall formulate specific operation plans according to the approved business plan, and operate after approval according to the prescribed procedures. For an unapproved operation plan, the financial department may not allocate funds or conduct transaction settlement.

(4) When conducting over-the-counter business, a separate risk assessment shall be conducted on trading tools, counterparty credit, contract text, etc., and the counterparty shall be carefully selected to conduct business.

(five) the implementation of special management of deposit and other capital accounts, standardize the procedures for the allocation and use of funds, strengthen daily monitoring, and dynamically carry out capital risk assessment and stress testing. Strictly carry out the procedures for examination and approval of margin increase. Financial derivative business shall not be carried out in personal account (or personal name).

(6) The risk management department shall establish a daily reporting system; The risk management department, the trading department and the financial department should check monthly; The risk management department and the trading department shall report the business development to the management every quarter.

All central enterprises should establish and improve the audit and supervision system of financial derivative business, improve the supervision mechanism, strengthen supervision and inspection, improve the quality of supervision, and give full play to the function of audit and supervision.

(1) The centralized management department of the Group shall select some enterprises or businesses to carry out special supervision and inspection every quarter, focusing on business compliance, whether there are illegal operations such as exceeding varieties, scales, deadlines and authorizations, and whether there is a risk of significant losses.

(II) The internal audit department of the Group shall audit all operating entities every year, focusing on the soundness and effectiveness of the business system and the authenticity of accounting.

(III) Report the problems found in the audit inspection to the Group in time and urge the rectification in place. For those who engage in speculative business or have significant loss risks, major legal disputes and serious impacts, they should be dealt with in a timely manner, and the operating entity should be suspended from conducting financial derivative business and be held accountable for rectification. The resumption of business needs to be reported to the board of directors of the group for approval.

(4) A system of accountability shall be formulated in accordance with the Implementation Measures for the Accountability of Illegal Investment of Central Enterprises (Trial) (Order No.37 of the State-owned Assets Supervision and Administration Commission) and other relevant provisions, so as to pursue the accountability of illegal matters. Questions and clues suspected of violating discipline or duties are transferred to the discipline inspection and supervision institutions. Questions and clues about suspected crimes shall be transferred to state supervisory organs or judicial organs. For the occurrence of major loss risks and serious impacts, the SASAC will deduct points or downgrade in the performance appraisal, and carry out accountability according to the cadre management authority.

All central enterprises shall regularly report the development of financial derivative business to the SASAC, and timely report major issues to ensure the accuracy and completeness of the information submitted.

(1) For the daily business development, the financial derivative business statement shall be submitted together with the financial express at the end of each quarter. Enterprises that have not carried out financial derivative business should make "zero declaration". The Group should strengthen the inspection and verification of reported data to avoid concealment, omission and misstatement.

(II) For the annual operation of the business, the Group shall submit a special report to the SASAC, including the annual business development (such as business types, hedging scale, profit and loss, risk assessment of positions held at the end of the year, etc.), hedging effect evaluation, problems found in audit inspection and rectification, and other major issues, and submit the special audit opinions issued by intermediaries to the SASAC together with the annual financial final report.

(three) for the development of speculative business or the risk of major losses, major legal disputes, resulting in serious impact, it should be reported to the SASAC within 24 hours, and the weekly report system should be established for the treatment measures and treatment. If there are special business needs, the term and scale exceed this notice, it should be reported to the SASAC in advance.

(four) for concealment, omission, misstatement and failure to report in time as required, the SASAC will inform and interview. SASAC will seriously hold accountable those who report information that is seriously inaccurate, conceal asset losses and fail to cooperate with supervision.

The SASAC will work with the Development and Reform Commission, the Ministry of Finance, the Ministry of Commerce, the People’s Bank of China, China Banking and Insurance Regulatory Commission, the CSRC, the foreign exchange bureau and other relevant departments to form a joint force of supervision and strengthen supervision through regular consultation, information sharing and joint inspection. The foreign exchange quota required by enterprises to carry out overseas financial derivative business shall be handled in accordance with relevant regulations and procedures.

Licensed financial institutions such as banks, futures, insurance, securities, etc. shall strictly abide by the relevant provisions of the regulatory authorities when conducting financial derivative business. The SASAC of all provinces, autonomous regions, municipalities directly under the Central Government, cities under separate state planning and Xinjiang Production and Construction Corps may carry out the supervision of financial derivatives business in this region with reference to this notice.

The Notice on Further Strengthening the Supervision of Financial Derivatives of Central Enterprises (No.19 [2009] of the State-owned Assets Supervision and Administration Commission), the Notice on Establishing a Temporary Supervision Mechanism of Financial Derivatives of Central Enterprises (No.187 [2010] of the State-owned Assets Supervision and Administration Commission) and the Notice on Cancelling the Approval of Overseas Commodity Derivatives of Central Enterprises (No.42 [2015] of the State-owned Assets Supervision and Administration Commission) shall be abolished as of the date of issuance of this notice.

State owned assets supervision and administration commission

January 13, 2020