China Sets an 18-Month Exit Clock for Subsidiary Derivatives Desks

China has given risk-management subsidiaries 18 months to leave two capital-intensive businesses. They must stop futures market-making and over-the-counter derivatives trading by 1 July 2028. Their futures-company parents can apply to take on either line. They do not have to.

That is a meaningful change in supervision. It is not evidence that the groups will carry less risk.

The distinction matters because, if a parent absorbs the activity, the same capital can move across a corporate structure while the consolidated balance sheet barely changes. Beijing has tightened the licensed perimeter. Investors still need to test whether the exposure, funding and loss-absorbing equity change with it.

The subsidiary exit comes first

The China Securities Regulatory Commission issued Order No. 235 and its implementation announcement on 11 September. Both take effect on 1 January 2027.

The order puts three businesses in a transaction-class bucket: futures market-making, asset management and derivatives trading. A futures company needs at least RMB500 million of registered capital to conduct one transaction-class business and RMB1 billion for two or more. The floor is RMB100 million for domestic futures brokerage alone and RMB200 million when advisory is added.

Existing companies that already conduct only brokerage or advisory are grandfathered. They do not have to raise registered capital to the new basic-business floors. A parent that chooses to add a transaction-class business still faces the applicable higher floor.

The transition has three clocks. Parents that want to continue relevant business already conducted by themselves or a subsidiary can apply by 1 January 2028 under a temporary waiver of the usual one-business-per-application limit and six-month gap between applications. Subsidiaries must stop market-making and derivatives trading by 1 July 2028. Unlicensed legacy asset managers cannot add plans after the rule starts and must terminate existing plans by 1 January 2029.

The China Futures Association's registry at 31 August shows 70 risk-management subsidiaries attached to 69 futures parents with at least one of the two businesses that will lose subsidiary permission on their registered scope. Sixty-nine list OTC derivatives, 36 list market-making and 35 list both. That is the defensible count of groups facing a licensing decision, not a count of groups with live positions.

The association's July activity report recorded 63 companies active in OTC derivatives and 37 active in market-making. It did not publish the overlap or map activity to parent groups. An exact count of groups that must unwind live business is therefore not public.

The capital is already inside many groups

Three listed-company filings show why a parent licence, and any subsequent business transfer, is not the same as a capital injection. At 30 June, Yongan Futures reported RMB1.456 billion of parent registered capital and RMB3.952 billion of parent net capital. Its Yongan Capital subsidiary had RMB2.1 billion of registered capital. Nanhua Futures reported RMB718 million of parent registered capital, RMB1.866 billion of parent net capital and RMB600 million of registered capital at Nanhua Capital. The filing also records post-period parent share capital of RMB1.038 billion. Ruida Futures reported RMB477 million of parent share capital and RMB2.060 billion of parent net capital, while its Ruida New Control subsidiary had RMB900 million of registered capital.

The contrast is useful, but not uniform. Yongan's parent already clears the RMB1 billion registered-capital floor for multiple transaction businesses. Ruida's parent sat RMB23 million below the RMB500 million floor for one business and RMB523 million below the RMB1 billion floor for two, even though the group had RMB900 million registered in the subsidiary. Ruida also injected RMB150 million into that subsidiary during the half, its filing shows.

If a group elects to keep the business, moving cash or equity from a subsidiary to the parent could close such a legal-entity gap without adding one renminbi of consolidated loss-absorbing capital. Yongan Capital's RMB9.030 billion of assets and RMB3.060 billion of net assets, and Ruida New Control's RMB2.953 billion of assets and RMB1.270 billion of net assets, show that the subsidiaries are not empty licenses. Yongan's risk-management segment produced RMB291.7 million of first-half revenue. Ruida's produced RMB160.1 million, or 20.06% of group revenue. But both segments mix derivatives and market-making with physical trade and other risk-management services. Even if a parent applies, the whole balance sheet will not necessarily migrate.

The rule removes permission from subsidiaries. A parent licence can relocate activity, but neither step makes the group balance sheet smaller.

Industry aggregates make the disclosure problem larger. Risk-management companies held RMB196.4 billion of assets and RMB48.4 billion of net assets in July. Outstanding OTC derivatives notional was RMB413.4 billion. Futures market-making turnover reached RMB23.164 trillion in the first seven months. Notional and turnover are not balance-sheet exposure, and none of those totals identifies the firms or positions that will close or be rebooked.

Control should improve before risk can be measured

Order No. 235 still does real prudential work for parents that take on the businesses. It requires administrative approval, centralized business management, dedicated accounts and separate market-making functions. Compliance, risk and internal control must cover subsidiaries, branches, staff and the full business lifecycle. Net capital has to be calculated and supplemented dynamically.

That should give the CSRC a clearer line from license to desk to capital. Yet the implementation announcement initially tells futures companies to use the association's existing risk-control metrics for subsidiary risk-management businesses until the regulator issues dedicated rules. The operating perimeter changes before the consolidated risk calibration is complete.

If a parent absorbs the business, three disclosures would turn relocation into evidence of de-risking. First, group equity should rise by more than any capital moved from subsidiary to parent. Second, outstanding OTC notional and market-risk measures should fall or become better collateralized after comparable business volumes are controlled for. Third, parent net-capital ratios should remain sound after the positions arrive, rather than merely clearing the registered-capital entry ticket.

The present filings do not disclose derivatives notional by subsidiary, planned position transfers or post-transition risk capital. The regulation therefore supports a narrower conclusion. China is closing subsidiary permissions and offering a licensed-parent route under tighter controls. Whether either outcome shrinks risk remains an unanswered balance-sheet question.