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2014 Master “Sifu” Agreement

On 22 August 2014, the Securities Association of China (SAC), the China Futures Association (CFA) and the Asset Management Association of China (AMAC) jointly published the 2014 Master Agreement.

The SAC, the CFA and the AMAC are all self-regulatory organisations supervised by the China Securities Regulatory Commission (CSRC), which approved the 2014 Master Agreement.

The 2014 Master Agreement is the latest in a long series:

  • 2006, Master Agreement by the State Administration of Foreign Exchange (SAFE) / China Foreign Exchange Trade System (CFETS) for RMB-FX Forward / Swaps traded through CFETS
  • 2007, Master Agreement by SAFE and CFETS, adding RMB-FX cross-currency swaps
  • 2007, Master Agreement by the National Association of Financial Market Institutional Investors (NAFMII), a self-regulatory organisation focused on the inter-bank market in China and supervised by the People’s Bank of China (PBOC)
  • 2009, Master Agreement by the NAFMII
  • 2013, Master Agreement by the SAC

The coexistence of multiple Master Agreements, supported by various organisations, themselves supported in the background by different regulators necessarily causes a certain degree of confusion in China. No one can serve two masters (Matthew 6:24), even Confucius would agree.

The 2014 Master Agreement reveals unusual features, such as:

  • By default, disputes are submitted to arbitration –  China International Economic and Trade Arbitration Commission (CIETAC)
  • Notices can be submitted not only with registered mail, but also by fax, telex and e-mail

On a general note, the master agreements in China incorporate the key concepts of the ISDA Master Agreement: the “single agreement approach”, the “flawed asset” and “close-out netting”.  Since 2006, the Chinese tendency is to support expansion of derivatives trading, by allowing a broader range of counterparties to trade a broader range of derivatives.

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