ISDA publishes inaugural China netting opinion issued by KWM – China becomes a 'clean netting jurisdiction'

The International Swaps and Derivatives Association, Inc. (ISDA) published the much-anticipated ISDA China netting opinion[1]issued by King & Wood Mallesons (KWM) on 1 August 2022. The ISDA China netting opinion confirms the validity and enforceability under PRC law of close-out netting under the ISDA Master Agreements.  

The publication of the ISDA China netting opinion coincides with the 1 August 2022 effective date of China’s Futures and Derivatives Law (FDL). The FDL is arguably one of the most significant legal developments in Asian derivatives markets over the past two decades because, for the first time in China’s modern history, the legal enforceability of close-out netting is expressly recognised at a national legislative level.  

China's status as a 'clean netting jurisdiction' marks the beginning of an exciting new chapter in the development of derivatives markets in the world’s second largest economy.  

KWM's cross-border derivatives and structured products team has been working on the transactional, regulatory, disputes and insolvency aspects of PRC and cross-border derivatives for nearly three decades. The ISDA China netting opinion draws upon KWM's great wealth of expertise and experience in PRC and cross-border regulatory and insolvency issues.    

The core team members of KWM working on the ISDA China netting opinion include Partner and Head of KWM Hong Kong's Banking & Finance practice Richard Mazzochi, Partner Minny Siu  and Registered Foreign Lawyer  Andrew Fei in Hong Kong SAR as well as Partners Stanley Zhou, James Guan, Daryl Hao and David Mu in the Mainland of China. 

Commenting on the publication of the China netting opinion, KWM Hong Kong team, Richard Mazzochi, Minny Siu and Andrew Fei said: "We are privileged to have assisted ISDA and international market participants on China netting issues over the past decade, culminating in the publication of the first ISDA China netting opinion. We congratulate ISDA and the industry participants on this milestone achievement for the global derivatives industry."

KWM partners Stanley Zhou, James Guan and David Mu from the Mainland of China echoed: "We are honoured to support ISDA from a Chinese legal perspective. The ISDA China netting opinion not only demonstrates KWM's in-depth understanding of the evolving Chinese legal and regulatory landscape, it also reflects the industry's recognition of KWM's strong international platform and first-class legal services."

KWM thanks ISDA and industry participants for their support in relation to the publication of the ISDA China netting opinion. KWM's cross-border derivatives and structured products team looks forward to working closely with the global derivatives industry to achieve future milestones in connecting China and international markets.

*Any reference to "Hong Kong" shall be construed as a reference to "Hong Kong Special Administrative Region of the People's Republic of China".