Grandway Advised Shanghai Clearing House on the First Case of Financial Market Case Testing

On July 5, 2022, Shanghai Financial Court issued the Provisions on Financial Market Case Testing Mechanism (Trial) (“Provisions on Case Testing Mechanism”), which provides clear guidance to the financial market through testing cases on cutting-edge typical facts and legal issues in financial business that need to be clarified by law and have significant impact on the financial market. On October 12, Shanghai Clearing House, together with Bank of Communications, SPD Bank, Industrial Bank, Societe Generale (China), submitted a test case application to Shanghai Financial Court, requesting that the court should initiate a test case on the legal issues related to default disposition of central counterparty clearing business. On October 13, Shanghai Financial Court made a decision to accept the case. This case is the first test case accepted by Shanghai Financial Court since the release of Provisions on Case Testing Mechanism.

On December 12, Shanghai Financial Court held a public hearing on the case. More than thirty people, including representatives of Shanghai Municipal People’s Congress, CPPCC members, representatives of financial infrastructure and financial legal institutions, experts and scholars from universities and journalists from the news media, attended the trial.

This case is of great significance to the financial infrastructure to improve its rules. Shanghai Clearing House, as the central counterparty clearing institution, formulates specific rules for the disposal of financial derivatives defaults and the formation of disposal plans in specific cases, involving the stability of the financial market and the interests of counterparties. The trial of this test case addresses the legal disputes that may arise in the default disposal scenario. The parties challenged and responded with various details of rule making and specific disposal, and fully expressed their legal opinions, which helps to further improve and enhance the international compatibility of relevant risk disposal rules in the context of system-based opening. It is of great significance to prevent systemic risks in the financial market and promote the sustainable and healthy development of the financial market.