INTERNATIONAL: ISDA Publishes China Netting Opinion as FDL

Tuesday August 2 2022

On 1^st August 2022,  the International Swaps and Derivatives Association (ISDA) published a new legal opinion that recognizes the enforceability of close-out netting under Chinese law. The netting opinion coincides with the entry into force of the Futures and Derivatives Law (FDL), which establishes a statutory framework for the trading of futures and derivatives in China. 

The first iteration of the FDL was published for consultation in April 2021, with provisions recognizing netting enforceability and confirming that close-out netting should not be stayed, invalidated or revoked because a party has entered bankruptcy proceedings. After the law was passed in April 2022, ISDA commissioned law firm King & Wood Mallesons to draft the netting opinion to coincide with the implementation of the FDL. 

While China’s  derivatives market represents only around 1% of global derivatives market turnover, according to BIS data. With netting now in place, further policy measures will be needed to continue to develop and grow the onshore derivatives market. ISDA set out a series of policy recommendations in a whitepaper in December 2021, covering risk governance, market structure, counterparty and market risk management, and the regulatory framework. 

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