To improve the socialist market economy, enhance the market-based exchange rate determination system and allow the market to better allocate resources, the People's Bank of China (PBC) will further strengthen the development of the inter-bank foreign exchange market by providing more risk management instruments for banks and enterprises. In accordance with such regulations as Regulations of the People's Republic of
I. To Introduce More Entities to the Foreign Exchange Spot Market
(I) Non-financial enterprises meeting the following criteria can apply for membership at China Foreign Exchange Trading Center (in short the Center) and, if approved, deal with proprietary transactions in the foreign exchange spot market.
1. In the previous year, the foreign exchange receipt and expenditure under current account exceeded 2.5 billion US dollars, or goods import and export totaled more than 2 billion US dollars.
2. The enterprise shall have at least 2 professional foreign exchange traders.
3. The enterprise shall be equipped with electronic trading system connected with the inter-bank foreign exchange market.
4. The enterprise had no major violation of foreign exchange regulations within 2 years preceding the date of application.
5. Other criteria as set by the State Administration of Foreign Exchange (SAFE).
(II) Non-banking financial institutions meeting the following criteria can apply for membership at the Center and, if approved, deal with proprietary transactions in the foreign exchange spot market.
6. The institution shall be approved by the authorities to deal with foreign exchange transactions.
7. The institution shall be approved by the SAFE to deal with foreign exchange surrender business.
8. Insurance companies shall have a registered capital of no less than 1 billion RMB yuan or equivalent amount of foreign exchange. Insurance companies, trust companies and finance companies shall have a registered capital of no less than 500 million RMB yuan or equivalent amount of foreign exchange. Fund management companies shall have a registered capital of no less than 150 million RMB yuan or equivalent amount of foreign exchange.
9. The institution shall have at least 2 professional foreign exchange traders.
10. The institution shall be equipped with electronic trading system connected with the inter-bank foreign exchange market.
11. The institution had no major violation of foreign exchange regulations within 2 years preceding the date of application.
12. Other criteria as set by the SAFE.
(III) Application Procedures of non-financial enterprises and non-banking financial institutions to access the inter-bank foreign exchange spot market
13. Qualified non-financial enterprises and non-banking financial institutions shall present the following documents to the Center on application. After initial examination, the Center shall register the case at the SAFE.
(1) Application reports shall be submitted, indicating the purpose of application and relevant staffing.
(2) Non-financial enterprises shall present documents about foreign exchange receipt and expenditure under current account or goods import and export of the previous year.
(3) Non-banking financial institutions shall present documents of their qualification to deal with foreign exchange transactions and settlement business as well as the foreign exchange financial statements audited by accounting firms.
(4) Configuration and function description of the technical support system.
(5) Internal management system concerning the participation of the inter-bank foreign exchange spot market, including fundamental operational procedures, risk management provision, business authorization rules and so on.
(6) Other documents as required by the Center.
14. The SAFE shall provide registration notice within 15 days after receiving the registration report from the Center, which will also receive a copy of the notice. The SAFE shall provide written notice to the unsuccessful applicants. Non-financial enterprises and non-banking financial institutions that do not register will not obtain membership at the Center and access to the foreign exchange spot market.
15. Under exceptional circumstances, non-financial enterprises and non-banking financial institutions can submit application directly to the SAFE. Once approved, these institutions will obtain membership at the Center and access to the inter-bank foreign exchange spot market.
(IV) Trading management of non-financial enterprises and non-banking financial institutions
16. Non-financial enterprises shall deal with spot transactions in the inter-bank foreign exchange market based on their true demand. All transactions can be made except those subject to approval of the SAFE or its branches according to the prevailing regulations.
17. Non-bank financial institutions can deal with all spot transactions except those that require approval of the SAFE and presentation of certain documents according to the prevailing regulations.
18. Non-banking financial institutions shall observe risk management provision promulgated by their respective regulatory authorities or the provision related to market risk management stipulated in the Guidelines on Commercial Bank Market Risk Management issued by the China Banking Regulatory Commission (No. 2004[10]).
II. To introduce quoting to the foreign exchange market
(I) Quoting system will be introduced to the inter-bank foreign exchange market. The members can decide to use either quoting system or bidding system.
(II) Quoting members shall make quotes through the quoting system of the Center. The currency, exchange rate and amount shall be determined by both parties involved.
(III) Quoting transactions will be dually settled and the associated risks will be assumed by the dealers, who shall observe rules of quoting transactions as set by the Center.
III. To introduce forward foreign exchange transactions
(I) Inter-bank forward foreign exchange transactions refer to transactions where both parties involved agree to deliver Renminbi for certain foreign currency at specified exchange rate in a future date.
(II) Participants of inter-bank foreign exchange forward market are members of the Center.
(III) Policy banks, commercial banks, trust and investment companies, financial leasing companies, finance companies and auto finance companies that are members of the Center and wish to deal with inter-bank forward foreign exchange transactions need approval of the CBRC to deal with financial derivatives. Other non-banking financial institutions need approval of their regulatory authorities. Non-financial enterprises need approval of the SAFE.
(IV) The SAFE conducts legal entity registration management for the participants of the inter-bank foreign exchange forward market. Qualified members of the Center shall apply to the Center by presenting documents specified in section (III). The Center will conduct initial examination and register the case at the SAFE, which will examine and register the case in accordance to I-(III)-2 of the Notice.
(V) The SAFE will determine the maximum amount of trading between domestic and foreign currencies for non-financial enterprises and non-banking financial institutions on the basis of the amounts of their foreign exchange surrender, capital or operating capital.
(VI) The following rules shall be observed with respect to the inter-bank foreign exchange forward transactions:
1. Both parties of the transaction shall use the Center's quoting system to trade and negotiate to determine the currency, amount, maturity, exchange rate and delivery arrangements.
2. Forward transaction can be delivered at full amount at the maturity date or at netting amount between forward price and spot price. The means of delivery and currency shall be specified in the contract.
3. To clarify rights and obligations, participants of the foreign exchange forward market shall sign main agreement of forward foreign exchange transactions.
4. To prevent default risk and ensure the fulfillment of forward contracts, participants of foreign exchange forward market can require their counterparts to deposit certain amount of margins at the Center.
5. Forward market member shall complete internal management and risk prevention mechanism, and take measures to monitor and manage the risks associated with forward transactions.
6. The Center is charged with monitoring and statistics of forward transactions, and disclosure of information to the public. It shall not, however, disclose non-public information or mislead market participants.
7. Participants of the forward market shall observe other rules of the inter-bank foreign exchange market in addition to those specified in the Notice.
(VII) Six months after the forward market participants gain their qualification to deal with forward transactions, they are allowed to deal with swaps that combine spot and forward transactions or combine different forward transactions.
IV. To strengthen foreign exchange market regulation
The PBC authorizes the SAFE to regulate the inter-bank foreign exchange spot and forward markets.
The SAFE shall strengthen its regulation over the foreign exchange market and seriously penalize the entities that violate the rules laid out in the Notice and damage the foreign exchange market discipline.
The Notice enters into effect on the date of issuance.
