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Enforcement Rules of the Shanghai International Energy Exchange (for Public Consultation)

Date:08 12, 2015 Author:Admin

Chapter 1

General Provisions

Article 1 These Rules are formulated, pursuant to the Regulations on the Administration of Futures Exchange and the General Exchange Rules of the Shanghai International Energy Exchange (the “General Exchange Rules”), to strengthen the management of futures market, regulate the futures trading activities and safeguard the legitimate rights and interests of futures market participants.

Article 2 The term “rule violation” in these Rules refers to the conduct of Members, Overseas Special Participants, Overseas Intermediaries, Clients, Designated Delivery Warehouses, Designated Settlement Banks, Designated Inspection Agencies, information service vendors, other futures market participants and the staff thereof, which breaches the General Exchange Rules, implementing rules and any other rules of the Shanghai International Energy Exchange (“the Exchange”).

Article 3 The Exchange investigates, determines and deals with the suspected rule violation based on factual evidence and principles of fairness and justice, and in compliance with the State laws, regulations and these Rules.

The rule violation that constitutes a criminal offense shall be referred to the judicial authority for prosecution.

Article 4 These Rules are applicable to any futures trading activity conducted on or through the Exchange.

Chapter 2

Compliance

Article 5 The inspection includes routine audit and investigation for cause. Inspection methods include interviews, document-based investigations, onsite examinations and other methods.

Article 6 The Exchange may conduct routine audit periodically or from time to time in accordance with the Exchange’s relevant rules, over the business activities of Members, Overseas Special Participants, Overseas Intermediaries, Clients, Designated Delivery Warehouses, Designated Settlement Banks, Designated Inspection Agencies, information service vendors and other futures market participants.

Article 7 The Exchange may exercise the following powers to perform its enforcement mandates:

1. access and copy the information, documents and materials in association with futures trading activities;

2. require Members, Overseas Special Participants, Overseas Intermediaries, Clients, Designated Delivery Warehouses, Designated Settlement Banks, Designated Inspection Agencies and other futures market participants to provide such reports as annual reports and third-party audit reports, and require Overseas Special Participants, Overseas Intermediaries or overseas Clients to provide supervisory reports issued by overseas regulators;

3. investigate and collect evidence from Members, Overseas Special Participants, Overseas Intermediaries, Clients, Designated Delivery Warehouses, Designated Settlement Banks, Designated Inspection Agencies and other futures market participants ;

4. require Members, Overseas Special Participants, Overseas Intermediaries, Clients, Designated Delivery Warehouses, Designated Settlement Banks and Designated Inspection Agencies that are under investigation to provide reports, statements, explanations and clarifications related to the investigation;

5. inquire bank accounts in relation to the futures business of Members, Overseas Special Participants, Overseas Intermediaries and Clients;

6. access and check IT systems of trading, settlement and financial status in relation to futures trading activities of Members, Overseas Special Participants, Overseas Intermediaries and Clients;

7. order to cease and correct the rule violation; and

8. exercise other powers as necessary to fulfill the Exchange’s enforcement mandates.

Article 8 Members, Overseas Special Participants, Overseas Intermediaries, Clients, Designated Delivery Warehouses, Designated Settlement Banks, Designated Inspection Agencies and other futures market participants shall subject themselves to the supervision and inspection of the Exchange, and cooperate with the Exchange to fulfill its regulatory mandates.

Article 9 The Exchange provides a channel for complainants and whistleblowers. A complainant or whistleblower shall indicate his or her true and clear identity. The Exchange shall keep the identity confidential if the person does not want it disclosed.

Article 10 The Exchange shall initiate an investigation for cause if it suspects that a violation has been committed after reviewing the evidence discovered from its routine audits, provided by complainants or whistleblowers, referred by regulatory authorities or judicial organs, or obtained from other sources.

Article 11 The Exchange shall authorize specific persons to be responsible for investigation into cases of suspected rule violation that have been placed on file. At least two (2) investigators shall take part in the investigation and evidence gathering activities, during which they shall provide their business badges or the documents issued by the Exchange to prove their authorizations.

Article 12 The investigator shall apply for recusal from the case if such person has a conflict of interest that could prejudice the investigation or conclusions.

If the person under investigation believes that the investigator has a conflict of interest in the case that may prejudice the fair handling of the case, the person may request the investigator to be recused from the investigation.

The Exchange shall recuse the investigator from the investigation when it deems necessary.

The head of compliance of the Exchange shall make decisions on the investigator’s recusal from the investigation. When the head of compliance has a possible conflict of interest, the President and CEO of the Exchange shall make decisions on the recusal of the head of compliance.

Article 13 Evidence of the investigation includes all the materials that shall prove the fact of the case. Such materials include documentary evidence, physical evidence, statements of parties involved, testimony of witnesses, investigation transcripts, appraisal verdicts, audio and video materials, or electronic records.

No evidence may be used as the basis of verdict unless the veracity of the evidence has been confirmed.

Article 14 Investigation transcripts shall be made when the investigator questions the respondent that is the subject of an investigation. The investigation transcripts shall be confirmed by the respondent and then signed by both the respondent and the investigator. Should the respondent refuse to do so, the investigator shall specify the reason of such refusal on the record.

Each time an investigator collects a piece of documentary and/or physical evidence, a note shall be made stating the time and the venue the evidence were collected. The note shall be signed by the respondent. If the respondent refuses or is unable to sign, the investigator shall specify the reason and a witness shall sign the note.

When audio and video materials or electronic records are collected or produced, the note shall specify when, where and how they were gathered or produced, and by which means they were produced and stored. The note shall be signed by the respondent or a witness.

The appraisal verdict shall be rendered by a competent agency that is recognized by the Chinese Securities Regulatory Commission (the “CSRC”) or the Exchange, and sealed and signed by the agency and the appraiser.

Article 15 The Exchange will initiate an investigation against a Member, an Overseas Special Participant, an Overseas Intermediary, a Client, a Designated Delivery Warehouse, a Designated Settlement Bank, or an information service vendor that is alleged of committing a serious rule violation. The Exchange may, before such alleged violation is confirmed, take the following restrictive measures against the party involved to prevent further deterioration, and ensure the enforcement of compliance:

1. requesting an explanation within a specified period;

2. suspending the assignment of new Client’s trading code;

3. restricting the withdrawal of funds;

4. restricting the deposit of new funds;

5. restricting the delivery business through or conducted by the Designated Delivery Warehouse, the depository business by the Designated Settlement Bank, and the information service business by the information service vendor;

6. reducing the position limits or the limits of standard warrants allowed to be held;

7. increasing margin requirements;

8. restricting the position opening;

9. ordering position liquidation to be conducted within a specified period; and

10. implementing forced position liquidation.

Article 16 Investigators of the Exchange shall strictly abide by confidentiality rules and shall not abuse their powers in the process of routine audit and investigation for cause.

Futures market participants shall strictly abide by confidentiality obligations during the routine audit and investigation for cause conducted by the Exchange.

The Exchange shall take disciplinary action against any violation of the provisions in the preceding paragraph according to different circumstances.

Chapter 3

Rule Violations and Sanctions

Article 17 The following conduct by a Futures Firm Member (the “FF Member”) constitutes rule violation relating to the futures brokerage business qualification:

1. obtaining a futures brokerage license by fraud;

2. setting up a futures brokerage branch without gaining approval from the competent authority;

3. employing persons to conduct futures brokerage business who fail to pass the Exchange’s training program or are not certified as futures professionals; or

4. engaging in other conduct that violates the regulations and rules relating to the futures brokerage business qualification prescribed by the CSRC and the Exchange.

An FF Member who is found to have engaged in any of the conduct described above shall be required to make rectifications, indemnify for any losses arising from the rule violation and be subject to forfeiture of any earnings arising from the rule violation. Furthermore, depending on the severity of the violation, the FF Member shall be subject to warning, reprimand, public censure, forced position liquidation, suspension of position opening for no more than twelve (12) months, and/or revocation of membership. In addition, a fine of no less than RMB ten thousand (10,000) and no more than one hundred thousand (100,000) may be imposed if there are no earnings resulting from the rule violation or the amount of the earnings is less than RMB one hundred thousand (100,000), or a fine between one (1) time and five (5) times the amount of the earnings may be imposed if the earnings are greater than RMB one hundred thousand (100,000).

Article 18 The following conduct by an FF Member constitutes the violation of the rules relating to the futures brokerage business:

1. executing futures orders for Clients who failed to go through the account opening procedure or who failed to meet the specified requirements for opening an account;

2. violating trading code rules;

3. opening an account for ineligible Clients without performing verification obligation;

4. having not truthfully explained to Clients the risk of futures trading or having not had the Clients sign the risk disclosure statement;

5. guaranteeing profits to Clients, or entering into a private agreement with a Client to share profits or losses;

6. using a Client’s account to trade for the Member itself or a third party;

7. failing to follow the Client’s trading instructions, using fraud or deception to curb, delay or change the execution of the Client’s order, or inducing or forcing a Client to trade;

8. failing to send Clients’ trading orders to the Exchange for matching;

9. failing to segregate Client funds from the Member’s own funds;

10. delaying the Client’s withdrawal of funds without justified reason;

11. allowing a Client to trade without sufficient margin;

12. misappropriating or allowing others to misappropriate Client funds, or apply funds from different Client accounts;

13. making up or spreading false or misleading information;

14. disclosing, without authorization, a Client’s instructions or other confidential information in relation to trading;

15. failing to provide the Client execution results and settlement statements according to the relevant rules;

16. violating the relevant Trading Participants Eligibility Management Rules; or

17. engaging in other conduct that violates the regulations and rules relating to the futures brokerage business prescribed by the CSRC and the Exchange.

An FF Member who is found to have engaged in any of the conduct described above shall be required to make rectifications, indemnify for any losses arising from the rule violation and be subject to forfeiture of any earnings arising from the rule violation. Furthermore, depending on the severity of the violation, the FF Member shall be subject to warning, reprimand, public censure, forced position liquidation, suspension of its partial futures business, suspension of position opening for no more than twelve (12) months, revocation of membership, and/or announcement as “persona non grata to the market”. In addition, a fine of no less than RMB ten thousand (10,000) and no more than one hundred thousand (100,000) may be imposed if there are no earnings resulting from the rule violation or the amount of the earnings is less than RMB one hundred thousand (100,000), or a fine between one (1) time and five (5) times the amount of the earnings may be imposed if the earnings are greater than RMB one hundred thousand (100,000). Depending on the severity of the violation, the directly responsible person shall be subject to reprimand, public censure, suspension from engaging in the Exchange’s futures businesses for no more than twelve (12) months, or revocation of the qualification to engage in the Exchange’s futures business.

Article 19 The following conduct by an Overseas Special Brokerage Participant (the “OSB Participant”) constitutes the violation of the rules relating to the futures brokerage business:

1. executing futures orders for Clients who failed to go through the account opening procedure or who failed to meet the specified requirements for opening an account;

2. violating trading code system;

3. opening an account for ineligible Clients without performing verification obligation;

4. having not truthfully explained to Clients the risk of futures trading or having not had the Clients sign the risk disclosure statement;

5. using a Client’s account to trade for the OSB Participant itself or a third party;

6. failing to follow the Client’s trading instructions or using fraud or deception to curb, delay or change the execution of the Client’s order or make a Client trade in favor of the OSB Participant itself;

7. failing to send Clients’ trading orders to the Exchange for matching;

8. failing to segregate Client funds from the OSB Participant’s own funds;

9. making up or spreading false or misleading information;

10. disclosing, without authorization, a Client’s instructions or other confidential information in relation to trading;

11. failing to provide the Client execution results and settlement statements according to the relevant rules;

12. violating other relevant provisions of the Trading Participants Eligibility Management Rules; or

13. engaging in other conduct that violates the regulations and rules relating to the futures brokerage business prescribed by the CSRC and the Exchange.

An OSB Participant who is found to have engaged in any of the conduct described above shall be required to make rectifications, indemnify for any losses arising from the rule violation and be subject to forfeiture of any earnings arising from the rule violation. Furthermore, depending on the severity of the violation, the OSB Participant shall be subject to warning, reprimand, public censure, forced position liquidation, suspension of its partial futures business, suspension of position opening for no more than twelve (12) months, revocation of qualification, and/or announcement as “persona non grata to the market”. In addition, a fine of no less than RMB ten thousand (10,000) and no more than one hundred thousand (100,000) may be imposed if there are no earnings resulting from the rule violation or the amount of the earnings is less than RMB one hundred thousand (100,000), or a fine between one (1) time and five (5) times the amount of the earnings may be imposed if the earnings are greater than RMB one hundred thousand (100,000). Depending on the severity of the violation, the directly responsible person shall be subject to reprimand, public censure, suspension from engaging in the Exchange’s futures businesses for no more than twelve (12) months, or revocation of the qualification to engage in the Exchange’s futures business.

Article 20 The following conduct by a Member or an Overseas Special Participant constitutes the rule violation:

1. failing to perform the reporting obligations pursuant to the rules of the Exchange;

2. failing to submit financial reports and supporting documents within the required time period;

3. failing to perform the obligations in accordance with the rules of large trader position report, falsifying any information in a report or concealing information;

4. failing to assist the Exchange in committing restrictive measures or other supervisory measures;

5. failing to pay the relevant fees within the required time period;

6. failing to maintain records in relation to trading, clearing, delivery, finance, accounting, etc.;

7. counterfeiting, tampering with, purchasing or selling certificates or approval documents;

8. non-Futures Firm Members (the “non-FF Members”) engaging in brokerage businesses or FF Members engaging in proprietary trading businesses; or

9. engaging in illegal activities such as money laundry and malicious currency exchange.

A Member or an Overseas Special Participant who is found to have engaged in any of the conduct described above shall be required to make rectifications. Furthermore, depending on the severity of the violation, the Member or the Overseas Special Participant shall be subject to warning, reprimand, public censure, suspension of its partial futures business, suspension of position opening for no more than twelve (12) months, and/or revocation of membership or Overseas Special Participant qualification.

Article 21 If a Member or an Overseas Special Participant constitutes any of the following rule violations, its membership or Overseas Special Participant qualification may be revoked:

1. having been revoked of the futures brokerage business license or having been banned from entering into the futures market;

2. transferring or disposing of memberships, Overseas Special Participant qualifications, or trading seats in private through leasing or pledging;

3. having severely insufficient capital, personnel, equipment and disordered management, and no effect is seen after rectification;

4. having been announced as “persona non grata to the market” by the Exchange;

5. having not been trading for three consecutive months without justified reason; or

6. breaching other State laws, rules and regulations, or serious violations of the relevant rules of the Exchange.

Article 22 Any Member or Overseas Special Participant who fails to comply with the Exchange’s order to liquidate positions within a specified time period and without justified reason shall be subject to warning, reprimand, public censure, suspension of its partial futures business, and/or suspension of position opening for a minimum of one (1) month to a maximum of twelve (12) months; in addition, a fine of up to RMB fifty thousand (50,000) may be imposed.

Article 23 The following conduct by a Member constitutes the violation of the Exchange’s rules relating to clearing business management:

1. failing to pay sufficient margin within the specified time period;

2. providing untrue or incomplete records in daily settlement statement, monthly statement or other settlement documents;

3. failing to segregate Clients’ margin funds;

4. failing to conduct the daily mark to market for Clients;

5. falsifying or fabricating trade records, financial statements or accounting books;

6. writing dishonored checks, submitting false invoices or other falsified bills or instruments; or

7. engaging in other conduct that violates the Exchange’s rules relating to clearing business management.

A Member who is found to have engaged in any of the conduct described above shall be required to make rectification. Furthermore, depending on the severity of the violation, the Member shall be subject to warning, reprimand, public censure, suspension of its partial futures business, and/or suspension of position opening for no more than twelve (12) months; in addition, a fine of no less than RMB ten thousand (10,000) and no more than two hundred thousand (200,000) may be imposed.

Article 24 If Overseas Intermediaries have any of the following circumstances, the following supervisory measures may be adopted: requesting an explanation, giving verbal alert, warning letter, requiring rectification, or any other measures; if they fail to rectify within the prescribed time, and their conduct may jeopardize the stable operation of futures market, or damage the legitimate rights and interests of Clients, the FF Members and OSB Participants may be required to suspend or terminate the carrying-brokerage business with such Overseas Intermediaries:

1. refusing to cooperate with the Exchange to conduct violation investigation on Clients;

2. violating relevant provisions of Chapter 4 of the Membership Management Rules of the Shanghai International Energy Exchange or Chapter 4 of the Overseas Special Participants Management Rules of the Shanghai International Energy Exchange;

3. its brokerage business being suspended or restricted or brokerage business qualification been revoked due to alleged violation of laws and regulation or occurrence of major risks; or

4. engaging in other conduct that violates the Exchange’s rules relating to Overseas Intermediaries.

After the carrying-brokerage business of Overseas Intermediaries with FF Members and OSB Participants has been suspended or terminated ,Overseas Intermediaries shall not take new Clients or open new positions; if Clients request to move their positions to other brokerage institutions, Overseas Intermediaries shall cooperate.

Article 25 Any of the Members, Overseas Special Participants, Overseas Intermediaries or Clients which, in the application for hedging or arbitrage position quota, submits or assists in providing false information or violates other rules of the Exchange, shall be prohibited from applying for hedging or arbitrage position quota. Furthermore, depending on the severity of the violation, such party shall be subject to warning, reprimand, public censure, suspension of its partial futures business, forced position liquidation, forfeiture of any earnings arising from the rule violation, revocation of membership or qualification, and/or announcement as “persona non grata to the market”; in addition, a fine in an amount not exceeding five percent (5%) of the notional value of the hedging positions or the arbitrage positions applied may be imposed.

Article 26 Any of the Members, Overseas Special Participants, Overseas Intermediaries or Clients that breaches the Exchange’s rules relating to open interest shall be required to make rectification. Furthermore, depending on the severity of the violation, such party shall be subject to warning, reprimand, public censure, forced position liquidation, suspension of position opening for a minimum of one (1) to a maximum of twelve (12) months, and/or suspension of its partial futures business.

Article 27 Any of the Members, Overseas Special Participants, Overseas Intermediaries or Clients that violates the relevant Exchange rules when engaging in standard warrant management shall be required to make rectification. Furthermore, depending on the severity of the violation, such parties shall be subject to warning, reprimand, public censure, suspension of its business to engage in standard warrant management, revocation of membership or qualification; in addition, a fine of no less than RMB ten thousand (10,000) and no more than one hundred thousand (100,000) may be imposed.

Article 28 The following conduct by a futures market participant constitutes rule violation:

1. providing fake account opening materials or trading with aggregated or netted multi-Clients’ positions;

2. stealing a trading password of any other person to engage in futures trading;

3. disseminating data owned by the Exchange without appropriate authorization;

4. stealing other participants’ confidential information, such as transaction information and clearing funds, or damaging the trading and clearing system;

5. failing to abide by provisions relating to risk warning of the Exchange or rectification requirements;

6. failing to meet the requirements relating to the Exchange’s standard warrant management system, and thus impacting the normal operation of the system;

7. stealing another participant’s confidential information such as standard warrant, or damaging the standard warrant management system; or

8. other violations against the rules of the Exchange relating to trading management, information management, and the management of telecommunication and other equipment.

A futures market participant who is found to have engaged in any of the conduct described above shall be required to make rectification and indemnify for any losses arising from the rule violation. Furthermore, depending on the severity of the violation, the futures market participant shall be subject to warning, reprimand, public censure, suspension of partial futures business, suspension of position opening for no more than twelve (12) months, and/or revocation of membership or qualification. In addition, a fine of no less than RMB ten thousand (10,000) and no more than one hundred thousand (100,000) may be imposed if there are no earnings resulting from the rule violation or the amount of the earnings is less than RMB one hundred thousand (100,000), or a fine between one (1) time and five (5) times the amount of the earnings may be imposed if the earnings are greater than RMB one hundred thousand (100,000).

Depending on the severity of the violation, the directly responsible person shall be subject to reprimand, public censure, suspension from engaging in the Exchange’s futures businesses for no more than twelve (12) months, or revocation of the qualification to engage in the Exchange’s futures businesses.

Article 29 The following conduct by a futures market participant constitutes the violation of the rules relating to trading management:

1. using an advantage in capital, position or information, alone or in conspiracy, repeatedly or jointly to trade in a contract in order to maliciously influence or attempt to influence the trading price or volume thereof;

2. applying methods such as transferring or splitting positions between accounts, or conducting accommodation trade to evade the Exchange’s position limit rules, or holding positions exceeding the limit to affect or attempt to affect the prices and market order;

3. applying methods such as transferring or splitting positions between accounts, or accommodation trade, to affect the prices on the Exchange, or to transfer funds between accounts or make unlawful earnings;

4. placing orders without good will or in a continuous way, for no purpose of executing them or under the awareness that they will not be executed, in an attempt to affect the futures prices, tamper with the market order or to transfer funds between accounts;

5. conducting wash trade by buying and selling consecutively or trading with himself or herself to affect or attempt to affect the prices and open interests on the Exchange;

6. any person with access to insider information which has material impact on the trading of a contract, or any person who has illegally obtained such insider information, using the said insider information to trade in a contract, or disclosing such insider information to any other person, who in turn uses such insider information to trade in the said contract, while such insider information is not yet made publicly available;

7. monopolizing, stockpiling the underlying products or improperly concentrating positions to withhold significant amounts of standard warrants issued by the Exchange’s Designated Delivery Warehouses, attempting to affect or seriously affecting the futures market conditions or the physical delivery on the Exchange;

8. for the purpose of manipulating the market, directly or indirectly controlling or tampering with the market order, interfering with or harming the equitable trading, national interests and public interests;

9. conducting Exchange for Physicals with no good will that affects market order;

10. engaging in any other conduct that violates the rules relating to trading management prescribed by the CSRC and the Exchange, affects the prices or trading volumes on the Exchange, or tampers with the market order.

A futures market participant who is found to have engaged in any of the conduct described above shall be required to make rectification, indemnify for any losses arising from the rule violation, and be subject to forfeiture of any earnings arising from the rule violation. Furthermore, depending on the severity of the violation, the futures market participant shall be subject to warning, reprimand, public censure, suspension of its partial futures business, forced position liquidation, suspension of position opening for no more than twelve (12) months, revocation of membership or qualification, and/or announcement as “persona non grata to the market”. In addition, a fine of no less than RMB ten thousand (10,000) and no more than one hundred thousand (100,000) may be imposed if there are no earnings resulting from the rule violation or the amount of the earnings is less than RMB one hundred thousand (100,000), or a fine between one (1) time and five (5) times the amount of the earnings may be imposed if the earnings are greater than RMB one hundred thousand (100,000).

A futures market participant who is found to have engaged in any of the conducts described above, but makes rectifications on his/her own initiative without causing negative impact on the market order, may be given a lenient punishment or be relieved from the punishment.

Article 30 The Exchange shall inform the CSRC and request initiation of an investigation by the CSRC, and may impose other restrictive measures such as suspension of position opening, provided that, as a result of an investigation, the Exchange has found the futures market participant to have:

1. committed a serious violation such as manipulation of the market;

2. engaged in wash trade or accommodation trade so as to have severely affected the final settlement price;

3. stolen a trading password of any other person to engage in trading in futures; or

4. committed any other acts suspected to have constituted a criminal offense.

Article 31 The following conduct by a delivery and settlement personnel constitutes rule violation:

1. obtaining the qualification of delivery and settlement personnel by fraud or by other improper means; or

2. counterfeiting, tampering with, or borrowing a delivery and settlement personnel badge.

A delivery and settlement personnel found to have engaged in any prohibited conduct shall be subject to one of following sanctions including warning, reprimand, public censure, suspension of such person’s delivery and settlement personnel certification for one (1) to twelve (12) months, or revocation of such person’s qualification as a delivery and settlement personnel depending on the severity of the violation. Other than further described sanctions, the Exchange may simultaneously fine such person in an amount of at least RMB one thousand (1,000) and no more than RMB ten thousand (10,000). The organization by which the delivery and settlement personnel is employed shall assume relevant responsibilities.

Article 32 A Designated Delivery Warehouse shall not engage in any of the following activities:

1. engaging in futures trading in violation of relevant laws and regulations;

2. issuing falsified standard warrants;

3. stealing and sale of the commodities stored relating to futures business;

4. disclosing non-public warehousing information with regard to futures contract or disseminating false information that may mislead the market;

5. acting in conspiracy with a futures market participant to manipulate or attempting to manipulate futures prices traded on the Exchange;

6. failing to ensure the brand name, trademark, specification, or quality of the commodity listed or described on the warrant is consistent with the commodity represented by the warrant;

7. failing to prove that the delivered goods are consistent with the description in the warrant;

8. absence or shortage of the required proof documents accompanying the warrant;

9. inconformity of the packaging, storage and other specifications to the Exchange’s requirements;

10. issuing a standard warrant without completing examination of a sample of the commodity described in the warrant;

11. inaccurately loading or unloading of goods;

12. using improper storage or preservation procedure that causes the commodity to deteriorate in quality or diminish in size;

13. damaging the packaging of the commodity or the commodity itself in the process of carrying, loading, stocking, or other related operations;

14. charging unreasonable fees for delivering the commodity;

15. intentionally interfering with the buyer or the seller so as to cause a buyer or seller to default;

16. breaching the Exchange’s rules relating to making physical delivery, or intentionally delaying the stock-in or stock-out of the deliverable goods;

17. failing to allow the Exchange to exercise its supervisory and inspection roles;

18. delaying physical delivery and non-cooperating with inspections by Designated Inspection Agencies without justified reason; or

19. engaging in other activities that breach the regulations and rules of the CSRC or the Exchange with respect to the Designated Delivery Warehouse.

Any Designated Delivery Warehouse that is found to have committed any of the prohibited conducts described above shall be subject to order from the Exchange to make rectification and forfeiture of any earnings resulting from the rule violation, and, depending on the severity of the violation, a sanction of warning, reprimand, public censure, reduction of certified warranting capacity, suspension of its delivery business with the Exchange, or revocation of its qualification as Designated Delivery Warehouse. Meanwhile, the Exchange may additionally fine the warehouse of no more than RMB five hundred thousand (500,000), if the warehouse earns nothing from its violation or earns less than RMB one hundred thousand (100,000), or between one (1) time and five (5) times the amount of that earnings if which is greater than RMB one hundred thousand (100,000).

Article 33 A Designated Inspection Agency shall not engage in any of the following activities:

1. violating of relevant laws and regulations on measuring and testing inspections for deliverable commodities;

2. issuing or assisting in issuing falsified inspection result reports;

3. not cooperating with Designated Delivery Warehouses or owners of goods for timely inspection of commodity without justified reason, such that the operation of loading or unloading is affected; or

4. engaging in other actions that breach the Exchange’s rules with respect to Designated Inspection Agency.

Any Designated Inspection Agency that is found to have committed any of the prohibited conducts described above shall be subject to order from the Exchange to make rectification and forfeiture of any earnings resulting from the rule violation, and, depending on the severity of the violation, a sanction of warning, reprimand, public censure, suspension of its inspection business, or revocation of its qualification as Designated Inspection Agency. Meanwhile, the Exchange may additionally fine such agency of no more than RMB five hundred thousand (500,000) if it earns less than RMB one hundred thousand (100,000) from the violation, or of the amount between one (1) time and five (5) times of that earnings if which is greater than RMB one hundred thousand (100,000).

Article 34 A futures market participant shall not intentionally default on physical delivery, affect or attempt to affect the functioning of the physical delivery for the purpose of making profits illegally. Or he/she constitutes violation and shall be subject to forfeiture of any earning resulting from the rule violation and one of following sanctions, including warning, reprimand, public censure, or suspension of position opening for one (1) to twelve (12) months depending on the severity of the violation. Meanwhile, the Exchange may additionally fine such person an amount of no less than ten percent (10%) and no more than thirty percent (30%) of the notional value of the defaulted contracts.

Article 35 A Designated Settlement Bank that fails to perform its obligations shall be ordered to make rectification, and, depending on the severity of the violation, a sanction of warning, reprimand, public censure, suspension of its partial futures business, or revocation of its qualification of Designated Settlement Bank.

Article 36 A futures market participant that disrupts the market operation of the Exchange shall be sanctioned with warning, reprimand, public censure, suspension of his/her partial futures business, suspension of position opening for up to twelve (12) months, revocation of his/her relevant trading qualification, or being declared as “persona non grata to the market” by the Exchange depending on the severity of the violation. The person accountable for the violation directly will have his/her qualifications for conducting futures activities on the Exchange suspended for no more than twelve (12) months or will be declared as “persona non grata to the market” by the Exchange depending on the severity of the violation.

Article 37 Any person that is declared as “persona non grata to the market” by the Exchange is prohibited from conducting futures activities on the Exchange and such person shall, within the specified time period, liquidate all of his/her open positions, conclude relevant business or activities, and settle any debts with the Exchange.

Article 38 Any person that is banned on market entry by the CSRC or other competent authorities shall not, as long as such ban is effective, engage in the futures business on the Exchange.

Article 39 A futures market participant who commits or is involved in any of the following actions or conditions shall be ordered to make rectification and, depending on the severity of the violation, subject to any of following sanctions, including warning, reprimand, public censure, or suspension of position opening for one (1) to twelve (12) months. Additionally, the Exchange may impose a fine on such person in the amount of at least RMB ten thousand (10,000) and no more than RMB two hundred thousand (200,000):

1. refusing to cooperate with the Exchange in a routine audit or investigation for cause, or violating the confidentiality obligations;

2. refusing to follow the Exchange’s ruling decision;

3. making a report, representation, explanation or statement that is fraudulent, misleading, or contains material omission; or

4. refusing to implement any restrictive measure or any other disciplinary action taken by the Exchange.

Article 40 For those rule violators who have been punished by the CSRC, they may be relieved from or reduced in responsibility for the same violation in Exchange’s enforcement action.

Article 41 For multiple rule violations at one time by the same person, each violation will be confirmed and sanctioned separately. For a recidivist, such person shall be subject to heavier sanctions.

Chapter 4

Settlement

Article 42 The Exchange implements settlement rules. The Exchange, during its investigations of suspected rule violations by citizens, legal persons or any other organizations (collectively, the respondents), may accept an offer for settlement by a respondent. After receiving the offer and reaching an agreement with such respondent regarding issues including the respondent’s taking of rectifying action, restitution to the negative consequences caused by the violation of rules and the payment for the settlement, the Exchange may enter into a settlement with such respondent to the effect the investigation shall be terminated.

Article 43 All settlements shall be governed by the principles of equity, non-coercion, honest negotiation and efficiency.

Article 44 The settlement procedures may apply to those respondents suspected of violating any Exchange rules, if the following conditions are satisfied:

1. the respondent is willing to take effective measures to compensate the trading participants that have suffered loss due to the suspected violation of rules by the respondent;

2. acceptance of settlement with the respondent would enhance regulatory supervision, clarify and stabilize market expectations, restore market order and protect participants’ legitimate rights and interests;

3. the Exchange has already filed a case and has conducted necessary investigations, but relevant facts or legal status of the case remain unclear; and

4. closing of the case via settlement does not violate the provisions of other applicable laws or administrative regulations, nor harm the public interests or legitimate rights and interests of any third parties.

Article 45 The Exchange shall not enter into settlement with a respondent under any of the following circumstances:

1. the facts regarding the respondents’ suspected rules violation are clear, and the supporting evidence is sufficient, the rules that shall be applied are clear, and a decision regarding violation shall be made;

2. the respondent is suspected to have violated the law; or

3. the Exchange at its sole discretion deems a settlement is inappropriate based on the principle of prudence.

Article 46 A respondent may make an offer of settlement to the Exchange at any time of the period from the initiation of the investigation by the Exchange to the rendering of ruling decision. Depending on the severity of the respondent’s behavior, the Exchange may close an investigation by way of accepting the agreed cash settlement paid by the respondent, entering into the settlement agreement with the respondent, or any other mutually agreed measures.

Article 47 After an investigating case is closed by settlement, the Exchange may subsequently undertake measures to ensure compliance with the settlement by the respondent. The Exchange shall reinstate the investigation if any of the following circumstances occurs:

1. failure by the respondent to fulfill its undertakings in the settlement agreement;

2. occurrence of material changes to the underlying grounds upon which the settlement has been based; or

3. the closing of a case has been based on incomplete or untruthful information provided by the subject of investigation.

Article 48 Procedures governing the settlement process shall be separately prescribed by the Exchange.

Chapter 5

Verdict and Enforcement

Article 49 The Board of Directors shall determine whether the Exchange shall apply a sanction of revoking membership or qualification of Overseas Special Participant, or declaring the offending party as “persona non grata to the market”.

Article 50 After the Exchange investigates and verifies the suspected violations, if the fact is clear and evidences are firm, the Exchange shall make a ruling in compliance with the Exchange’s Articles of Association, the General Exchange Rules, and these Rules.

Article 51 The Exchange shall issue a written notice of ruling decision. Such notice shall describe the following items:

1. name and premises of party concerned;

2. facts and evidences of the violations;

3. types and basis of the sanctions;

4. the way of performance and effective period of the sanctions;

5. method and period of lodging an appeal; and

6. date of the decision.

Article 52 The Exchange shall serve the notice of ruling decision on the party concerned. If the service is sent by electronic messaging system, it will be deemed delivered upon the day the notice enters the recipient’s designated electronic messaging system. Or if the service is made by post, it will be deemed delivered within five (5) days of posting for addresses in the PRC except Hong Kong, Macao, or Taiwan and ten (10) days of posting for addresses out of PRC, or in Hong Kong, Macao or Taiwan. Copies of the notice shall be sent, simultaneously, to the entities that are to assist in the enforcement of the decision.

The authorized contact of the CSRC shall be copied in the same electronic message or a hardcopy of the notice shall be mailed to the CSRC simultaneously if required by the CSRC regulation.

Article 53 The ruling decision of the Exchange shall come into effect as of the date the notice is deemed delivered.

The party concerned may appeal the decision in writing to the Exchange for once within ten (10) days after the effective date of the ruling decision.

Such ruling decision shall remain effective regardless of the fact that the appeal is ongoing.

Article 54 The Exchange shall, within thirty (30) days from the date it receives the appeal, make a decision on the appeal, which shall be final and binding.

Article 55 If the Member, Overseas Special Participant, Overseas Intermediary, Client, Designated Delivery Warehouse, Designated Settlement Bank, Designated Inspection Agency, information service vendor, or any other futures market participant refuses to perform the obligations pursuant to the ruling decision, the Exchange may enforce its performance thereof.

Related futures market participants shall cooperate with the Exchange in carrying out enforcement action.

Article 56 If the decision involves payment of fine, the parties concerned shall, within five (5) working days of the effective date of the ruling decision, remit payment of fines in full to the Exchange’s designated account.

If a Member fails to make payment within such time period, the Exchange may deduct the amount of such payment from the Member’s clearing reserve or dedicated margin account. The Member shall pay for its employee if that employee is ruled accountable for the payment of fines.

The Member, Overseas Special Participant or Overseas Intermediary shall cooperate with the Exchange in its enforcement of sanctions to deduct from the fund of the party concerned under the control of such Member, Overseas Special Participant or Overseas Intermediary.

A Designated Delivery Warehouse shall pay for its employee if that employee is ruled accountable for the payment of fines. If the payment fails to be made within the prescribed time period, the Exchange shall deduct it from the performance deposit of such Designated Delivery Warehouse.

Chapter 6

Dispute Mediation

Article 57 Disputes among Members, Overseas Special Participants, Overseas Intermediaries, Clients, Designated Delivery Warehouses, Designated Settlement Banks, Designated Inspection Agencies, information service vendors, and any other participants in the futures market over the futures business activities may be settled among themselves or under the auspices of the Exchange. If the mediator is unable to resolve the dispute, the disputing parties concerned may raise them before other arbitral institutions or bring suit into court.

Article 58 The claimant shall provide the written application for mediation to the Exchange. The mediation opinion will enter into force upon the mediation opinion is signed or officially sealed by the relevant parties.

Article 59 The procedures for the Exchange to conduct mediation shall be prescribed by the Exchange separately.

Chapter 7

Miscellaneous

Article 60 The currency adopted or described in these Rules is RMB Yuan. To determine the applicable RMB amount, foreign currencies shall be converted at the exchange rate at the time of the occurrence of relevant conduct.

Article 61 The fines, settlement payments, or other funds collected by the Exchange in accordance with these Rules shall be managed and used by reference to the regulations of the risk reserve of the Exchange.

Article 62 The Exchange reserves the right of interpretation of these Rules.

Article 63 These Enforcement Rules are effective as of [ ].

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