All the branches and operations offices of the People's Bank of China, the central sub-branches in capital cities and those in Dalian, Qingdao, Ningbo, Xiamen and Shenzhen city; the branches of the State Administration of Foreign Exchange and the departments of foreign exchange administration of all the provinces, autonomous regions, and municipalities directly under the Central Government, and the branches in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo city; all the designated Chinese-funded forex banks; and the China Foreign Exchange Trade System:
With a view to improving the socialist market economic system, improving the extent of marketization on the formation of exchange rate, and bringing into full play the fundamental role of market in allocation of resources, the People's Bank of China decides to accelerate the development of inter-bank foreign exchange market, so as to provide more risk management tools for banks and enterprises. According to the Regulation of the People's Republic of China on Foreign Exchange Administration, the Interim Provisions on Inter-bank Foreign Exchange Market Management, and the relevant laws and regulations, we hereby make this notice on relevant issues as follows:
I. Expanding the subjects for transaction in spot exchange market
1. A non-financial enterprise that complies with the following conditions may apply for membership qualification to the China Foreign Exchange Trade System (hereinafter referred to as the CFETS) and enter into the inter-bank spot exchange market for self-managed transaction:
(1) The income and expenses from cross-border foreign exchange under current account in the previous year being more than 2.5 billion USD or the total amount of import and export of trade in goods being more than 2 billion USD;
(2) Having more than 2 professionals undertaking foreign exchange transaction;
(3) Having electronic transaction system networking with inter-bank foreign exchange market;
(4) Having no acts of serious violation of any law or regulation on foreign exchange management within two years before the day of application; and
(5) Other conditions as prescribed by the State Administration of Foreign Exchange.
2. A non-bank financial institution that complies with the following conditions may apply for membership qualification to the CFETS, and enter into the inter-bank spot exchange market for transaction:
(1) Having the qualification for foreign exchange business management as approved by the competent authorities;
(2) Having the qualification for managing the settlement and sale of foreign exchange business as approved by the State Administration of Foreign Exchange;
(3) The registered capital of an insurance company shall be no lower than RMB 1 billion or the equivalent foreign exchange. The registered capital of a securities company, trust company or finance company and etc. shall be no lower than RMB 0.5 billion or the equivalent foreign exchange, the registered capital of a fund management company shall be no lower than RMB 0.15 billion or the equivalent foreign exchange;
(4) Having more than two professionals undertaking foreign exchange transaction;
(5) Having electronic transaction system networking with inter-bank foreign exchange market;
(6) Having no acts of serious violation of any law or regulation on foreign exchange control within two years before the day of application; and
(7) Other conditions as prescribed by the State Administration of Foreign Exchange.
3. Application procedures for non-financial enterprises and non-bank financial institutions entering into inter-bank spot exchange market for transaction:
(1) Any non-financial enterprise or non-bank financial institution that complies with the conditions shall, upon the strength of the following materials, file an application to the CFETS, which shall report to the State Administration of Foreign Exchange for archival filing after preliminary examination.
a. Application report (stating the main purpose for the application, the staffing, and etc.);
b. A non-financial enterprise shall submit the report on the relevant information concerning the income and expenses from cross-border foreign exchange under current account in the previous year or the total amount of import and export of trade in goods;
c. A non-bank financial institution shall submit the certificate documents of qualification for foreign exchange business management and of qualification for managing the business of settlement and sale of foreign exchange, and the foreign exchange financial report of the previous year audited by an accountant firm;
d. The specifications on the equipment of the technical support system and on the functions thereof;
e. The internal management system for participating in inter-bank spot exchange market transaction, including basic operating rules, risk management provisions, and the provisions on the business power, and etc.; and
f. Other materials that shall be provided as required by the CFETS.
(2) The State Administration of Foreign Exchange shall, within 15 workdays after receiving the archival filing report submitted by the CFETS, issue the Notice on Archival Filing, and send a copy to the CFETS at the same time. For the applicant not complying with the provisions and whose archival filing is not granted, the State Administration of Foreign Exchange may notify it in writing. Any non-financial enterprise or non-bank financial institution whose archival filing is not granted shall not obtain the membership qualification of the CFETS, and shall not enter into the spot exchange market for transaction.
(3) Under special circumstances, a non-financial enterprise and non-bank financial institution may file an application directly to the State Administration of Foreign Exchange and obtain the membership qualification of the CFETS, and enter into the inter-bank spot foreign exchange market for transaction.
4. Administration on the transaction of non-financial enterprises and non-bank financial institutions
(1) A non-financial enterprise shall follow the principle of actual demand for spot transaction in inter-bank foreign exchange market. And all the transactions may enter into the market except those that shall be subject to the approval of the State Administration of Foreign Exchange and its branches and sub-branches (hereinafter referred to as the foreign exchange administrations) as prescribed by the existing laws on foreign exchange control;
(2) The spot transaction of a non-bank financial institution in inter-bank foreign exchange market shall be subject to the approval of the State Administration of Foreign Exchange and submit the document of approval for foreign exchange settlement or sale as prescribed by the laws on foreign exchange control; other transactions may be carried out within the market.
(3)The non-bank financial institutions shall observe the risk management provisions as prescribed by their own competent department of industry, or implement by analogy the relevant provisions on market risk management of the Guidance to Market Risk Management on Commercial Banks (Order No.10 [2004] of the China Banking Regulatory Commission).
II. Increasing the ways of price inquiry transaction in foreign exchange market
1. The system of price inquiry transaction shall be introduced into the inter-bank foreign exchange market, the members of the CFETS may determine by themselves to adopt the ways of price inquiry transaction or competitive transaction.
2. The members taking the ways of price inquiry transaction shall, on the basis of mutual credit, conduct transaction through the system of price inquiry transaction of the CFETS, the kinds of currencies, exchange rate, and amount of transaction shall be determined by the two parties of transaction through negotiation.
3. Bilateral liquidation shall be applied to price inquiry transaction with the risk being borne by themselves. And the various provisions of the management system of price inquiry transaction of the CFETS shall be observed.
III. Opening inter-bank forward exchange transaction
1. The inter-bank forward exchange transaction shall refer to the transaction of RMB to foreign exchange, which is settled with the kinds of foreign exchange currency, amount of money, and exchange rate agreed upon by the two parties of transaction and in a certain agreed date in the future.
2. The subjects participating in inter-bank forward exchange market shall be the members of the CFETS.
3. If any member of any policy bank, commercial bank, trust investment company, finance leasing company, finance company, or the auto financial company takes part in inter-bank forward exchange transaction, it shall obtain the qualification for the business of transaction of financial derivative products issued by the China Banking Regulatory Commission. Any member of other non-bank financial institutions shall get the approval of its supervision authority; any member of non-financial enterprises shall be subject to the approval of the State Administration of Foreign Exchange.
4. The State Administration of Foreign Exchange shall apply legal person archival filing administration on the subjects participating in inter-bank forward exchange market. The members of the CFETS who comply with the requirements may, upon the strength of the documents as prescribed in item (3) of this Article, file an application to the CFETS, which shall report to the State Administration of Foreign Exchange for archival filing after preliminary examination. The State Administration of Foreign Exchange shall make examination on the archival filing of the institution in light of the procedures as prescribed in sub-item (2) of Item 3 of Article I of the present Notice.
5. The State Administration of Foreign Exchange shall, according to the business volume of exchange settlement and sale, scale of capital money or operating capital, and status of foreign exchange capital, and other indexes, verify the transfer position of domestic and foreign currencies of non-financial enterprises and non-bank financial institutions.
6. The following provisions shall be followed for inter-bank forward exchange transaction:
(1) The two parties of transaction shall conduct transaction through the price inquiry transaction system of the CFETS. And the kinds of foreign currencies, amount of money, term, exchange rate, and arrangement for the settlement of transaction shall be determined by the two parties of transaction through negotiation.
(2) A forward transaction may take the way of settlement of the total amount of principal at the maturity day, or may take the way of settlement of the offset balance between the agreed forward transaction price and the spot transaction price at the maturity day. The two ways of settlement and the kinds of currencies shall be clarified in the bargaining list.
(3) In order to clarify the rights and obligations of the two parties of transaction, the members in forward exchange market shall sign a primary agreement on inter-bank forward exchange transaction.
(4) In order to prevent risk for breach of contract, and ensure the performance of the contract on forward exchange transaction, the members in the forward exchange market may set a deposit according to the credit status of the counterparty of transaction through negotiation. The deposit may be kept collectively by the CFETS as an agent.
(5) The members in forward exchange market shall establish and perfect internal management system and risk prevention mechanism, and take earnest and effective measures to make monitoring and management on the forward risk.
(6) The CFETS shall be responsible for providing transaction system and make routine statistics and monitoring, and disclose the relevant information to the market in time, but shall not reveal the non-public information or mislead the participants of the market. And
(7) The members of the forward exchange market shall, in addition to observing the provisions of this Notice, observe other relevant provisions on inter-bank foreign exchange market.
7. The members in forward exchange market may, after six months after obtaining the qualification on archival filing of forward transaction, and according to the relevant administration provisions on spot transaction and forward transaction, carry out swap transactions of RMB to foreign currencies with the combination of spot transaction and forward transaction, and forward transaction and forward transaction in inter-bank market.
IV. Strengthening supervision over foreign exchange market
The People's Bank of China authorizes the State Administration of Foreign Exchange to conduct supervision and administration on inter-bank spot exchange market and forward exchange market.
The State Administration of Foreign Exchange shall, in accordance with the Regulation of the People's Republic of China on Foreign Exchange Administration and the relevant provisions on foreign exchange control, strengthen supervision and inspection on foreign exchange market, and rigorously investigate and punish the participating subjects who violate the provisions of this Notice and disturb the transaction order of foreign exchange market.
The Notice shall be implemented as of the date of promulgation.
The People's Bank of China
August 8, 2005
