An Analysis of the Legal Infrastructure of Chinese Financial Derivatives Trading and Securitisation : From an English Legal Comparative Perspective

The legal structure of Chinese Banking securitsation has been evolving cautiously. Since 1997 until recntly, the Bank of China (BOC) had the monopoly in selling and purchasing forward contracts in China; other Chinese banks were excluded from entering into forward contracts. However, the People's Bank of China liberalised the RMB swaps on February 24 2006 on a pilot scheme basis. this pilot scheme aims to strengthen the confidence of the securitisation marke tin China and to satisfy the other itner bank bond market investors' risk and asset management. The legal structure of securitisation should date back to the first provisional Rules regarding the derivatives activities in 2004. The provisional Rules in 2004 laid the legal foundation for securitisation in China. The 2006 scheme and administrative Rules have been implemented to establish a sound channel assisting Chinese banks in their asset management. The objective of the Provisional Administrative Rule Governing Derivatives Activities of Financial Institutions 2004, known as the Rules, is to control the risk of derivatives activities of financial institutions in China. The chronological development of the legal regulations on derivatives activities are the PRovisional Administrative Rule Governing Derivatives Activities of Financial Institutions 2004, followed by the Administrative Rules for Pilot Securitisation of Credit Assets April 2005 and the RMB Swap Pilot Scheme.This paper examines the Rules in 2004 that define the nature of derivatives activities. The definition of derivatives in the Rules is the core concept for the later Securitisations of Credit Assets 2005 and the RMB Swap Pilot Scheme 2006. Despite the fact that the China Banking Regulatory Commission (CBRC) is the Chinese banking regulator, the People's Bank of China (PBC) maintains the power to regulate RMB currency in terms of rate and exchange. Therefore the RMB Swap Piot scheme will enhance both Chinese banking securitisation and derivative trading