New China Derivatives Law Is Latest Attempt to Open Market
- New law brings default rules in line with major world markets
- Seen as a big step that promises to slash trading costs
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A regulatory breakthrough is expected to slash costs for investors trading over-the-counter derivatives in China, the latest step in opening up the nation’s capital markets to foreign investors.
A Chinese law that takes effect Monday enforces a mechanism used around the world for determining payouts if a derivative counterparty defaults, bringing the standards there in line with those used in other major markets. This recognition of so-called close-out netting is seen lowering the cost of trading by reducing the funds that would need to be set aside to protect against credit risks.