Definitions of Commodities subject to Over-the-counter Derivative Transactions in the Markets of China

 2018-06-29  57


· Document Number:No. 10 [2015] of the China Fund Association

· Area of Law: Securities

· Level of Authority: Industry Regulations

· Date issued:08-11-2015

· Effective Date:08-11-2015

· Status: Effective

· Issuing Authority: Securities Association of China China Futures Association

 

Notice of the Securities Association of China, the China Futures Association, and the China Fund Association on Issuing the Document on the Definitions of Commodities subject to Over-the-counter Derivative Transactions on the Securities and Futures Markets of China (2015 Version)
(No. 10 [2015] of the China Fund Association)
All relevant entities:
For purposes of further improving the supportive document of the master agreement on the over-the-counter (“OTC”) derivative transactions on the securities and futures markets and meeting the needs of market participants in OTC commodity derivative transactions, the Securities Association of China, the China Futures Association, and the China Fund Association jointly developed the Document on the Definitions of Commodities subject to Over-the-counter Derivative Transactions on the Securities and Futures Markets of China (2015 Version, hereinafter referred to as the “Document on the Definitions of Commodities”) and the letter of confirmation on supportive transactions. Adopted at the Fifth Council of the Securities Association of China, the Fourth Council of the China Futures Association, and the First Council of the China Fund Association, they are hereby issued, with the consent of the China Securities Regulatory Commission (“CSRC”).
Securities Association of China
China Futures Association
China Fund Association
August 11, 2015
Annex 1:
Document on the Definitions of Commodities subject to Over-the-counter Derivative Transactions on the Securities and Futures Markets of China
(2015 Version)
Statement
The Securities Association of China, the China Futures Association, and the China Fund Association (hereinafter referred to as the “three associations”) jointly issued the Document on the Definitions of the Commodity Derivatives subject to Over-the-counter Transactions on the Securities and Futures Markets of China (2015 Version, hereinafter referred to as the “Document on the Definitions of Commodities”), for the purposes of providing definitions of the terms used on the exchange to participants of OTC commodity derivative transactions, to reduce transaction costs, improve transaction efficiency, as well as promote and regulate the development of OTC commodity derivatives market.
The three associations will, based on market development and needs, regularly adjust the contents of definitions. In using the Document on the Definitions of Commodities, both parties to a transaction may, in light of their own needs, conduct amendment thereto or supplement therefor, to meet the specific needs of the parties to a transaction. The three associations shall not be responsible for the error, omission, invalidity, or price miscount caused by participants in the use of the definitions of commodities.
The copyright of the Document on the Definitions of Commodities shall be owned by the three associations. Unless for the purpose of conducting transactions relevant to the Document on the Definitions of Commodities or for the purposes of teaching and research, without the prior written consent of the copyright owner, no person shall be allowed to reproduce, copy, translate, or distribute paper, electronic, or other versions of the Document on the Definitions of Commodities.
Article 1 General Definitions
1.1 Transactions of Commodity Derivatives
It means the transactions specified by both parties to a transaction in valid agreements of relevant transactions as “transactions of commodity derivatives,” including forward transactions of commodities, swap transactions of commodities, option transactions of commodities, and combined transactions, as well as other transactions of commodity derivatives agreed in the valid agreements of transactions. The underlying assets of transactions of commodity derivatives (hereinafter referred to as “transaction”) shall be the underlying commodities.
1.2 Underlying Commodities
It includes, but is not limited to, the physical commodities and commodity indexes in compliance with the legal requirements. Underlying commodities and their detailed characteristics shall be agreed by both parties to a transaction in a valid agreement.
1.3 Quantity of Underlying Commodities
It means the quantity of objects used in transactions of commodity derivatives as agreed by both parties to a transaction in a valid agreement of transaction. The units of the quantity of objects include, but are not limited to, ton, kilogram, lot, and bucket.
1.4 Valid Agreement of Transaction
It means a legally binding agreement made for a transaction of commodity derivatives, including, but not limited to, confirmation of transaction.
1.5 Confirmation of Transaction
It means a document or electronic document exchanged by both parties to a transaction for confirming or proving the transactions of commodity derivatives, including but not limited to, electronic confirmation, e-mail, telegram, telex, fax, contract, and letter.
1.6 Both Parties to A Transaction / One Party to A Transaction
It means a forward buyer and a forward seller, or a payer of the fixed amount of a swap (payer A of the floating amount of a swap) and a payer of the floating amount of a swap (payer B of the floating amount of a swap), or an option buyer and an option seller, under a commodity derivatives transaction, depending on the type of the transaction. It is collectively referred to as both parties to a transaction or respectively referred to as one party to a transaction.
1.7 Calculation Agency
It means an agency specified in a valid agreement of a transaction and named after the definition. A calculation agency may be held by one party to a transaction, be jointly held by both parties to a transaction, or any third party selected by the both parties to a transaction in compliance with the applicable laws of China. In conducting specific calculation, a calculation agency shall follow the principle of good faith. In performing the duties, a calculation agency shall not be deemed a trustee or consultant of any party to a transaction.
Unless as otherwise agreed by both parties to a transaction, if a party to a transaction has reasonable disputes in any calculation, determination, or adjustment made by a calculation agency (or when both parties to a transaction are both calculation agencies, a party to a transaction against the other party), it may, without violating any applicable laws of China, within two business days of learning of the calculation, determination, or adjustment, and under the principle of good faith, select an independent third party as a review agency, in conjunction with the other party. If both parties to a transaction fail to jointly select a review agency within the aforesaid period, both parties to a transaction may, within the first business day after the aforesaid period, respectively select an independent third party, and the two independent third parties may jointly select another independent third party as a review agency. If a party to a transaction fails to select an independent third party within the business day, the independent third party selected by the other party shall be the review agency. If both parties to a transaction fail to respectively select independent third parties within the business day, the calculation, determination, or adjustment previously made by the calculation agency shall have ultimate binding force on both parties to a transaction, except when there is obvious error or negligence in the calculation, determination, or adjustment.
The review agency shall be (and limited to be) responsible for conducting re-calculation, re-determination, or re-adjustment for the aforesaid results in dispute, under the principles of good faith and commercial reasonability. Under this premise, the calculation, determination, or adjustment made by the review agency shall have ultimate binding force on both parties to a transaction, except when the calculation, determination, or adjustment has obvious error or negligence. Unless as otherwise agreed by both parties to a transaction, the cost of hiring a review agency shall be shared equally by both parties to a transaction.
1.8 Broker
It means an intermediary organization that is established according to the law to conduct transactions of commodity derivatives on behalf of clients and collect handling charges, including but not limited to financial institutions established according to the law. The specific selection methods and standards therefor may be specified by both parties to a transaction in a valid agreement of transactions.
1.9 Trader
It means a relevant institution with a license to engage in transactions of commodity derivatives as selected by both parties to a transaction or the calculation agency under the principle of good faith. The specific selection methods and standards therefor may be specified by both parties to a transaction in a valid agreement of transactions.
1.10 Pricing Agency
It means a legal person or another entity that provides quotation to both parties to a transaction or the public for the determination of specified price on the day of pricing. Both parties to a transaction may choose the reference price of commodity offered by one or multiple pricing agencies to determine a specified price. The specific method and standards of choosing may be specified by both parties to a transaction in a valid agreement of transaction.
1.11 Settlement Currency
Unless as otherwise agreed by both parties to a transaction, it is yuan.
1.12 Calculation Accuracy
Unless as otherwise agreed by both parties to a transaction, it means the amount, price, quantity, and percentage, accurate to the second decimal place, involved in the valid agreement of transaction.
1.13 Capital Account
It means the account specified by a party to a transaction for the receipt and payment of funds by the other party.
1.14 Clearing Arrangement
It means the applicable clearing mode selected by both parties to a transaction for transactions of commodity derivatives, including the bilateral clearing mode or the centralized clearing mode.
In accordance with the requirements of the applicable regulations or the agreement of the both parties to a transaction, centralized clearing shall be conducted for transactions of commodity derivatives for which “centralized clearing” is adopted at the third-party clearing institutions specified or recognized by relevant supervision institutions, and clearing shall be completed in accordance with the relevant effective provisions of the clearing institutions at that time.
1.15 Futures Transaction Places
It means the futures exchanges that are specified by both parties to a transaction in the valid agreement of transaction, are established according to applicable laws, organize futures contracts or option contract transactions by means of centralized transaction or other means approved by the statutory supervision institutions, including but not limited to, the Shanghai Futures Exchange, the Zhengzhou Commodity Exchange, the Dalian Commodity Exchange, and the China Financial Futures Exchange.
1.16 Other Derivatives Transaction Places
It means places that are specified by both parties to a transaction in the valid agreement of transaction, are established according to applicable laws, and organize transaction of forward contracts, swap contracts, futures contracts, and other derivatives outside futures transaction places, including but not limited to the Quotation and Service System for Products Privately Offered between Securities Companies.
Article 2 Date-related Definitions
2.1 Business Day
Unless as otherwise agreed by both parties to a transaction, it means the following days: normal business days (excluding statutory holidays) of commercial banks at the places where relevant accounts are located, for any cash settlement; normal business days (excluding statutory holidays) of the delivery warehouse agreed by both parties to a transaction at the places where delivery is conducted for any physical delivery; and normal business days (excluding statutory holidays) of commercial banks in the specified cities of the notification address provided by the recipient, for notification or communication.
2.2 Business Day Convention
If the relevant date of a transaction is not a business day, adjustment shall be made accordingly based on the following convention:
(1) “The next business day:” it shall be postponed to the next business day.
(2) “Adjusted next business day:” it shall be postponed to the next business day; but if the next business day across to the next month, it shall be advanced to the previous business day.
(3) “The previous business day:” it shall be advanced to the previous business day.
2.3 Transaction Conclusion Day
For a transaction, it means the date named after this definition as specified in the valid agreement of transaction, when the transaction is concluded by and between both parties to a transaction.
2.4 Trading Day of Underlying Commodities
For a transaction for which the prices announced by the exchanges are quoted as the prices of commodities, the trading day of underlying commodities (excluding the duration of the interruption (interference) event) shall be the trading day as prescribed by the exchanges; and for a transaction for which the prices not announced by the exchanges are quoted as the prices of commodities, the trading day of underlying commodities (excluding the duration of the interruption (interference) event) shall be the day on which the source of the reference prices of relevant commodities is announced.
2.5 Pricing Day (Period)
It means the day on which the specified price applicable to the transaction as agreed by the both parties to a transaction is obtained or the period when the mode of average price is adopted for pricing.
2.6 Effective Day
For a transaction, it means the date when the transaction terms come into force, also known as the start day.
2.7 Expiration Date
For a transaction, it means the date when the transaction is closed as specified by both parties to a transaction in the valid agreement of transaction.
2.8 Delivery Date
It means the date when the underlying commodities shall be delivered as agreed by both parties to a transaction in the valid agreement of transaction. The date shall be adjusted according to the business day convention agreed.
2.9 Settlement Day
It means the date of cash settlement as agreed by both parties to a transaction in the valid agreement of transaction. The date shall be adjusted according to the business day convention agreed.
2.10 Calculation Period / Single Calculation Period
For a transaction, it means the actual number of calendar days between the effective date (inclusive) to the expiration date (inclusive) of the transaction. The times of swap during the calculation period may be specified in the valid agreement of transaction on commodity swap. The formula for the single calculation period applicable to the type of transaction:
Single calculation period = calculation period / swap times
2.11 Interruption (Interference) Day
It means the date when an interruption (interference) event occurs.
Article 3 Price-related Definitions
3.1 Fixed Price
It means the unit price as the basis for calculating the fixed amount as agreed by both parties to a transaction.
3.2 Floating Price
It means the price specified by both parties to a transaction for calculating the floating amount. Where the both parties to a transaction are both payers of the floating amount of swap, the floating price may be divided into floating price A and floating price B.
3.3 Mode of Fixed Pricing
It means the pricing mode under which both parties to a transaction determines the price of a transaction of commodity derivatives with a price negotiated by both parties to a transaction.
3.4 Mode of Benchmark Pricing
It means the pricing mode that both parties to a transaction determine the specific price by adding and subtracting the premium and discount negotiated, with the agreed reference price of commodity as the valuation basis.
3.5 Mode of Average Price
It means the pricing mode that both parties to a transaction calculate the specific price according to the way of calculating the pricing period and average price as determined in the relevant valid agreement of transaction.
3.6 Specified Price
It means the price of the transaction of commodity derivatives determined or calculated on the basis of (1) the highest price; (2) the lowest price; (3) the average of the highest price and the lowest price; (4) the closing price; (5) the opening price; (6) the bid price; (7) the offer price; (8) the average between the bid price and the offer price; (9) exercise price; (10) forward price; (11) spot price; (12) commodity index price; or (13) other prices, of which the calculation method shall be specified by both parties to a transaction in the relevant valid agreement of transactions.
3.7 Reference Prices of Commodities
It means the prices applicable to the transactions of commodity derivatives announced or issued through the source of the reference prices of commodities. These prices shall be listed in the Annexes to the Document on the Definitions of Commodities, including but not limited to, the specified price, the underlying commodity, and the source of reference prices of commodity, which shall be specified by both parties to a transaction in the valid agreement of transaction.
Article 4 Creation of Reference Prices of Commodities
4.1 Source of Reference Prices of Commodities
It means the information source and channels that announce or issue the reference prices of commodities, including but not limited to, exchanges, legal paper (electronic) media or publications, pricing agencies, and financial institutions.
4.2 Creation of Reference Prices of Commodities
Both parties to a transaction may, by specifying the following conditions in the valid agreement of transaction, create reference prices of commodities not contained in the annexes, and such conditions include but are not limited to:
(1) underlying commodities; (2) measurement or trading unit; (3) source of reference prices of commodities including exchanges; (4) pricing date; (5) specified price and its currency of per unit of commodity; and (6) delivery date.
Article 5 Definitions Relevant to Forward Transaction of Commodities
5.1 Forward Transactions of Commodities
Both parties to a transaction shall, according to the valid agreement of transaction, conduct transactions of underlying commodities of the quantity and at the forward prices agreed on the delivery day, or conduct transactions of cash settlement at the settlement amount of forward transactions on the settlement date.
5.2 Forward Buyer
It means one party to a transaction that buys underlying commodities of the quantity and at the forward price as agreed on the delivery date or that pays or collects the settlement amount of forward transaction on the settlement date.
5.3 Forward Seller
It means one party to a transaction that sells underlying commodities of the quantity and at the forward price as agreed on the delivery date or that collects or pays the settlement amount of forward transaction on the settlement date.
5.4 Forward Price
It means the specified price of buying or selling underlying commodities on the delivery date as agreed by both parties to a transaction in the valid agreement of transaction.
5.5 Settlement Price of Forward Transactions
It means the specified price of for the settlement of accounts receivable and accounts payable between both parties to a transaction as agreed by both parties to a transaction in the valid agreement of transaction.
5.6 Settlement Amount of Forward Transactions
It means the amount of cash paid by one party to a transaction to the other party on the settlement date. The calculation formula is as follows:
Settlement amount of forward transactions = (settlement price of forward transactions – forward price) x quantity of underlying commodities
Of which:
(1) If the settlement amount of a forward transaction is a positive number, the amount shall be paid by the forward seller to the forward buyer.
(2) If the settlement amount of a forward transaction is a negative number, the amount shall be paid by the forward buyer to the forward seller.
(3) If the settlement amount of a forward transaction is zero, no payment shall be made between both parties to a transaction.
Article 6 Definitions Relevant to Swap Transactions of Commodities
6.1 Swap Transactions of Commodities
It means a transaction that according to the valid agreement of transaction, one party to a transaction pays for a certain quantity of underlying commodities at the fixed price or floating price per unit to the other party on a regular basis and the other party to the transaction also pays for the equal amount of such commodities at the floating price per unit to one party to a transaction on a regular basis.
6.2 Fixed Amount
It means the fixed amount due from one party to a transaction on the settlement date. Unless as otherwise agreed by both parties to a transaction, the calculation formula is as follows:
Fixed amount = calculation period / quantity of underlying commodities of a single calculation period × fixed price
6.3 Floating Amount
It means the floating amount due from one party to a transaction on the settlement date. Unless as otherwise agreed by both parties to a transaction, the calculation formula is as follows:
Floating amount = calculation period / quantity of underlying commodities of a single calculation period × fixed price
6.4 Payer of the Fixed Amount of Swap
It means one party to a transaction specified in the valid agreement of a transaction as the payer of the fixed amount of swap.
6.5 Payer of the Floating Amount of Swap
It means one party to a transaction or both parties to a transaction specified in the valid agreement of a transaction as the payer of the fixed amount of swap. One party to a transaction that calculates floating amount on the basis of floating price A is called as payer A of the floating amount of swap and one party to a transaction that calculates floating amount on the basis of floating price B is called payer B of the floating amount of swap.
6.6 Times of Swap
It means the frequency of swap within the calculation period of a swap transaction of commodities. Its unit is time / calculation period.
6.7 Settlement Amount of Swap Transactions
It means the amount of cash paid by one party to a transaction to the other party on the settlement date. The calculation formula is as follows:
Settlement amount of a swap transaction = (fixed price – floating price) x calculation period / the quantity of underlying commodities of a single calculation period
or
Settlement amount of a swap transaction = (floating price A – floating price B) x calculation period / the quantity of underlying commodities of a single calculation period
Of which,
(1) If the settlement amount of a swap transaction is a positive number, the payer of the fixed amount of swap (payer A of the floating amount of swap) shall pay the amount to the payer of the floating amount of swap (payer B of the floating amount of swap).
(2) If the settlement amount of a swap transaction is a negative number, the payer of the floating amount of swap (payer B of the floating amount of swap) shall pay the amount to the payer of the fixed amount of swap (payer A of the floating amount of swap).
(3) If the settlement amount of a swap transaction is zero, no payment shall be made between both parties to a transaction.
Article 7 Definitions Relevant to Option Transaction of Commodities
7.1 Option Transaction of Commodities
It means a transaction that the option buyer is entitled to buy or sell the underlying commodities to the option seller, or conducts cash settlement with the option seller on the settlement day. One option may involve one or more of the aforesaid rights, under the premise that such rights are clearly specified in relevant valid agreements of transaction by both parties to a transaction.
7.2 Option Buyer
It means one party to a transaction that pays certain option premium to the option seller, and is entitled to buy or sell the underlying commodities at the agreed exercise price and in the agreed quantity on the exercise day, or is entitled to collect the settlement amount of the option transaction on the settlement day.
7.3 Option Seller
It means one party to a transaction that collects certain option premium from the option buyer, is obliged to sell or buy underlying commodities at the agreed exercise price and in the agreed quantity on the exercise day when the option buyer requests exercise, or is obliged to pay the settlement amount of the option transaction on the settlement day.
7.4 Call Option
It means the option that the option buyer is entitled to buy the underlying commodities at the agreed exercise price and in the agreed quantity on the exercise day.
7.5 Put Option
It means the option that the option buyer is entitled to sell the underlying commodities at the agreed exercise price and in the agreed quantity on the exercise day.
7.6 European Style Option
It means the option which may only be exercised by the option buyer on the expiration date.
7.7 American Style Option
It means the option that may be exercised by the option buyer on the expiration date or any transaction day of the underlying commodities from the effective date to the expiration date.
7.8 Exercise-related Definitions
(1) Exercise
It means that an option buyer buys the rights of the underlying commodities in an agreed quantity from the option seller at the exercise price on the exercise date.
(2) Exercise Price
It means the unit price for buying or selling underlying commodities in exercise as agreed by both parties to a transaction in the valid agreement of transaction.
(3) Exercise Date
It means the date when the commodity option buyer chooses whether or not to exercise.
(4) Starting Date of Exercise
It means the starting date of exercise as specified by both parties to a transaction in the valid agreement of transaction.
(5) Deadline of Exercise
It means the latest time point for exercise on the exercise date as specified by both parties to a transaction in the valid agreement of transaction. Unless as otherwise agreed by both parties to a transaction, it is 3:30 PM Beijing Time.
(6) Exercise Notice
It means an irrevocable notice issued by the commodity option buyer to the commodity option seller by fax, electronic transmission systems, telephone, and other means to request rights exercising. The specific contents of the exercise notice may be agreed by both parties to a transaction in the valid agreement of transaction.
(7) Automatic Exercise
It means applying “automatic exercise” as agreed in the valid agreement of transaction and exercising the rights in the event of failure in exercise at the deadline of exercise on the expiration date, unless the option buyer notifies the option seller of the removal of automatic exercise by the way agreed by both parties to a transaction in advance before the deadline of exercise on the expiration date.
(8) Repeated Exercise
If a commodity option transaction is agreed by both parties to a transaction to be American Style Option and to apply “repeated option” in the relevant valid agreement of transaction and is subject to the restriction of the valid agreement of transaction on the quantity to be exercised, the option buyer may exercise unexercised options on the exercise day, in whole or in part.
7.9 Option Premium-related Definitions
(1) Option Premium
It means the costs paid by the commodity option buyer for buying the option.
(2) Payment Day of Option Premium
It means the date when the commodity option buyer pays the option premium to the commodity option seller.
7.10 Settlement Amount of Option Transaction
It means the amount of cash paid by the option seller to the option buyer on the settlement date.
(1) If the option buyer is entitled to sell the underlying commodities to the option seller on the exercise date, the calculation formula is:
Settlement amount of option transaction = (exercise price – specified price) x quantity of underlying commodities
(2) If the option buyer is entitled to buy the underlying commodities to the option seller on the exercise date, the calculation formula is:
Settlement amount of option transaction = (specified price – exercise price) x quantity of underlying commodities
Article 8 Delivery-related Definitions
8.1 Physical Delivery
It means the delivery mode that both parties to a transaction deliver the underlying commodities by the way of the transferring the ownership of underlying commodities as specified in relevant valid agreement of transaction on the delivery date, according to the rules and procedures of the exchange or agreed by the both parties to a transaction.
If net settlement needs to be adopted for physical delivery, both parties to a transaction may separately reach agreement on relevant contents in the valid agreement of transaction.
8.2 Cash Settlement
It means the delivery mode that both parties to a transaction settle a contract by cash receipt and payment on the settlement date according to the rules and procedures agreed in the valid agreement of transaction.
8.3 Delivery Notice
It means a notice on physical delivery issued by one party to a transaction to the other party. The notice shall specify the specific information on delivery of underlying commodities, including but not limited to, quantity delivered, delivery location, delivery costs, deposit for delivery, delivery default and handling, and assumption of taxes and fees.
8.4 Quantity Delivered
It means the quantity of underlying commodities delivered on the delivery date.
8.5 Quantity Location
It means the location for delivery of underlying commodities on the delivery date. Delivery location includes, but is not limited to, the delivery warehouse.
8.6 Quantity Costs
It means the costs to be paid by both parties to a transaction for physical delivery, including but not limited to, the commission charges of delivery, packing expenses, weighing fees, freight, and storage charges.
8.7 Deposit for Delivery
It means the deposit prepared to be used by one party to a transaction for physical delivery according to the rules of the exchanges or relevant valid agreements of transactions.
Article 9 Interruption (Interference) Events and Handling Mechanism
9.1 Interruption (Interference) Events
(1) Interruption (interference) of reference price of commodity
It means (a) the source of reference price of commodity used for determining the specified price (or the information or factors indispensible for determining the specified price) is unable to normally publish or display prices; (b) the source of reference price of commodity is temporarily or permanently unavailable; and (c) the source of reference price of commodity becomes invalid, no longer issues information to the public, and is closed or banned.
(2) Transaction Interruption (Interference)
It means significant interruption or significant restrictions on normal transaction in the course of fulfilling the transaction contracts due to any reason not attributable to both parties to a transaction, including but not limited to the following situations:
(a) All transactions of the same type are unable to be normally conducted from the effective date to the expiration date.
(b) From the occurrence of interruption (interference) on a trading day of underlying commodities, the time interrupted (interfered) is not shorter than the time specified by the exchanges or agreed by both parties to a transaction in valid agreements of transactions, and the transaction has not been assumed or restarted before the end of the trading hours of the day.
(c) On a trading day of the underlying commodities, transaction is unable to be carried out, as the price fluctuation of the underlying commodities exceeds the price fluctuation restrictions.
(3) Calculation Formula, Contract Content, or Major Changes Constituted
It means the significant changes in the calculation formula or the mode of estimating price, contract contents, structure, or integral part in the valid agreement of transaction due to any reason not attributable to both parties to a transaction from the effective date, which leads to inability to determine or calculate relevant prices according to the agreement made in advance in the valid agreement of transaction, results in consequents that become substantially unreasonable, or have a significant adverse impact on the interests of both parties to a transaction or one party to a transaction.
(4) Other Interruption (Interference) Events
It means the events or circumstances that lead to failure to fulfill the relevant valid agreement of transaction or conduct transaction as usual, due to amendments to the applicable laws, adjustments to key policies, changes in accounting standards, tax adjustments, changes in tax rates, and force majeure, among others.
9.2 Handling Mechanism
It means one or multiple handling mechanism(s) agreed by both parties to a transaction in a valid agreement of transaction for interruption (interference) events (if multiple handling mechanisms are adopted, the order of applying such handling mechanisms shall be agreed concurrently), including, but not limited to:
(1) Standby Source of Reference Prices of Commodities
It means one or several standby source(s) of reference prices of commodities agreed by both parties to a transaction in the valid agreement of transaction.
(2) Negotiation on Recovery
After the occurrence of the interruption (interference) events, both parties to a transaction shall immediately conduct negotiation for fresh agreement on the source of reference prices of commodities or reach consensus on reference prices of commodities (or the methods of determining the reference price of commodity). If both parties to a transaction are unable to reach consensus within five trading days of underlying commodities subsequent to the occurrence of the interruption (interference) events, the next handling mechanism agreed in the valid agreement of transaction shall apply.
(3) Extension
It means that the date of specifying price is extended for one or multiple trading days of underlying commodities. If physical delivery or cash settlement is unable to be conducted since a specified price is still unavailable after extension, the delivery date or the settlement date will be postponed accordingly, until the specified price may be determined. Both parties to a transaction shall specify the extension duration, times, and other relevant details in the relevant valid agreement of transaction for the circumstances to which the “extension” handling mechanism shall apply.
(4) Recovery of Reference Price of Commodity
It means the new reference price of commodity issued or announced through the source of reference prices of commodities after the termination of the interruption (interference) event. If both parties to a transaction agree on applying recovered reference price of commodity, the date and price in the original valid agreement of transaction shall be automatically extended.
(5) Calculation by Calculation Agency
An calculation agency shall, on the basis of the recent available quotation announced or issued through relevant source of reference prices of commodities and under the principle of good faith, determine the specified price. Both parties to a transaction shall specifically specify the conditions, standards, and procedures applicable to the handling mechanism of “calculation by calculation agency” in relevant valid agreement of transaction.
(6) Termination of Transaction
It means that both parties to a transaction terminate transaction according to the early termination terms of the master agreement, supplemental agreement or relevant valid agreement of transaction.
Article 10 Definitions Relevant to Default and Compensation
10.1 Transaction Default
It means the events of default specified in the master agreement, supplemental agreement or relevant valid agreement of transaction from the effective date to the expiration date, except the interruption (interference) events.
10.2 Delivery Default
Conducting one of the following acts, both parties to a transaction constitute delivery default:
(1) One party to a transaction with obligation of delivering underlying commodities fails to deliver the underlying commodities or the valid warehouse receipt representing the underlying commodities within the specified term of delivery.
(2) One party to a transaction with payment obligations fails to make payments for goods or make payment for goods in full, within the specified term of delivery.
(3) One party to a transaction with obligations of delivering underlying commodities delivers substandard underlying commodities.
(4) Other default acts identified by the exchanges or agreed by both parties to a transaction.
10.3 Amount of Compensation
It includes, but is not limited to, damages, compensations, costs, expenses, interests, default interests, and liquidated damages specified in the master agreement, supplemental agreement or relevant valid agreement of transaction.
Article 11 Supplementary Terms
Agreements not mentioned herein shall be supplemented by both parties to a transaction in the valid agreement of transaction in light of the actual needs.