The People’s Bank of China Order of the People’s Bank of China No.2 To regulate the book-entry government bonds trading over the counter of commercial banks and encourage healthy development of bond The People’s Bank of China January 31, 2002 Procedures on the Book-entry Government Bonds Trading over the Counter of Commercial Banks Chapter I General Provisions Article 1 To regulate book-entry government bonds trading over the counter of commercial banks, facilitate investor’s trading activities and Article 2 The book-entry government bonds (hereinafter referred to as bonds) defined herein refer to bonds designated by the Ministry of Finance Article 3 Bond trading over the counter of commercial banks (hereinafter referred to as over-the-counter bond trading) defined herein refers Article 4 After consulting with the Ministry of Finance, the People’s Bank of China can approve qualified commercial banks to undertake over-the-counter Article 5 Investors hereof are individuals or enterprises who trade bonds with commercial banks through commercial banks’ outlets. Financial Article 6 Over-the-counter bond trading shall follow the principle of fairness and integrity. Investors shall take the relevant risks alone. Article 7 Over-the-counter traded bonds have a two-tier custody system: the Central Government Bond Registration and Clearing Corporation Ltd. The bond custody account adopts the real name system. Article 8 The Central Clearing Co. shall stipulate business standards for over-the-counter bond tradings in accordance with the Rules and regulate Article 9 The People’s Bank of China is the competent authority for the supervision of over-the-counter trading activities. Branches of the Chapter II Undertaking Banks Article 10 A commercial bank applying to be an undertaking bank shall satisfy the following conditions: (1) The applicant should have unified, safe and stable computerized business processing system; (2) The applicant should have sound internal control system and risk prevention mechanism; (3) The applicant should have a special division to be responsible for over-the-counter trading activities and qualified full-time staff; (4) The applicant should actively participate in the inter-bank bond market and the total bond trading volume two years prior to the application (5) The applicant should have been a member of the underwriter group of government bonds for three consecutive years before application; (6) The applicant should have no serious violation records two years prior to application in the inter-bank bond market; and (7) Other conditions required by the People’s Bank of China. Article 11 A commercial bank that applies for being an undertaking bank shall provide the People’s Bank of China with the following materials: (1) An Application Letter; (2) A business plan for over-the-counter trading; (3) An organizational structure and staff arrangement plan for over-the-counter trading; (4) An internal control system and implementation rules worked out in accordance with the Rules; (5) The current situation of computer-based business processing system and a development plan of the business processing system for conducting (6) Other relevant materials required by the People’s Bank of China. Article 12 The Provincial branches of an undertaking bank who apply for over-the-counter trading business shall get the approval by the People’s Article 13 An undertaking bank shall separate the over-the-counter trading business with other bond businesses in the inter-bank bond market. Article 14 An undertaking bank can conduct the following businesses: (1) Buying and selling bonds with investors as a self-managing dealers and providing two-way quotation; (2) Opening custody accounts for bond investors and conducting custody, settlement and other relevant businesses; (3) Selling bonds and servicing bond principle and interest through their outlets; and (4) Handling the bond registration as collateral for investors. Article 15 An undertaking bank has the following rights: (1) Requiring investors provide real and effective identification documents; and (2) Providing bid and offer prices with discretion within the established spreads. Article 16 An undertaking bank’s commitments include: (1) Opening and maintaining accounts for investors and providing account requiring, information and consulting services; (2) Publishing price quotations for over-the-counter trading in accordance with the Rules; (3) Accurately and continuously keeping record of investor’s bonds transactions and balances, and transmitting daily over-the-counter (4) Keeping investor’s account information confidential; and (5) Reporting to the People’s Bank of China the information about over-the-counter trading business, serious events being reported to Chapter III Trading and Settlement Article 17 Over-the-counter trading shall be conducted through the over-the-counter trading business processing system (hereinafter referred Article 18 Business day for over-the-counter trading is any day from Monday to Friday, except legal holidays. An undertaking bank shall not stop Article 19 Investors shall open bond custody accounts in their real names, and open or designate a corresponding capital account according to Article 20 Investors shall provide the undertaking bank with written orders in buying or selling bonds. The undertaking bank shall maintain complete Article 21 The spread between the bid and offer prices made by an undertaking bank shall not be higher than the price difference set up or adjusted Article 22 Within business hours, undertaking banks shall quote unified bid and offer prices and reference yield to maturity in all their outlets Article 23 Undertaking banks shall present the following notice prominently in all their undertaking outlets: “The prices are given according Article 24 Undertaking banks shall buy or sell bonds at the disclosed prices. Were there some temporary shortage of certain kind of bond, the Article 25 The quotation unit of over-the-counter bond trading is in RMB hundred yuan, and so is the trading unit. The unit for settlement is Article 26 Over-the-counter trading adopts the real time settlement for delivery and payment. Undertaking banks shall conduct capital and bond The Central Clearing Co. shall, in accordance with the data and settlement orders received, finish the bond settlement between the Chapter IV Bond Custody and Redemption Article 27 The Central Clearing Co. shall open dealer’s accounts and general broker’s accounts for undertaking banks, and record their own bonds Article 28 An undertaking bank shall open bond custodian account for investors to record their bonds. After the Central Clearing Corporation’s Article 29 Undertaking banks and the Central Clearing Corporation may charge service fees for providing custody and other relevant services. Article 30 Undertaking banks shall strictly separate their own bonds with their investors’ bonds, and shall not misappropriate investors’ bonds. Article 31 Investors may make recustody of their bonds among different undertaking banks. Article 32 Issuers shall transfer the redeemed interest or principal to the fund account designated by the Central Clearing Corporation at least Chapter V Inquiry and Supervision Article 33 Undertaking banks shall establish account information inquiry systems for over-the-counter bonds trading, while the Central Clearing Article 34 Undertaking banks shall as stipulated transfer their over-the-counter trading data to the Central Clearing Corporation, and the latter Article 35 The Central Clearing Corporation shall publish the quotation information provided by undertaking banks to the public through China Article 36 With the authorization of the People’s Bank of China, the Central Clearing Corporation may examine the second-grade custodian accounts Article 37 Undertaking banks and the Central Clearing Corporation shall report periodically to the People’s Bank of China on over-the-counter Chapter VI Penalty Provisions Article 38 A commercial bank that has committed any of the following offences shall, according to the seriousness of the offence, be punished (1) Conducting over-the-counter trading business without approval; (2) Not publishing two-way quotations as stipulated by the rules; (3) Short-selling bonds; (4) Conducting over-the-counter trading business out of the trading system; (5) Not satisfying the need of investors according to the quoted prices; (6) Suspending trading activities without proper causes; (7) Misappropriating investors’ bonds; (8) Fabricating bond accounts’ records; (9) Change Custody for investors without following the relevant rules; (10) Issuing false bond custody certification; (11) Divulging investors’ account secret information; and (12) Other offences against the Rules. Article 39 The Central Clearing Corporation shall be punished by the People’s Bank of China circulating a notice of criticism or giving a disciplinary (1) Causing serious losses to undertaking banks or investors because of its dereliction of duty; (2) Publishing false information or divulging non-public information; (3) Inducing investors and resulting in their losses; (4) Facilitating the malicious manipulation of the market or various activities against the Rules by undertaking banks; (5) Divulging secrets of undertaking banks and investors; and (6) Other offences against the Rules. Chapter VII Supplementary Provisions Article 40 The People’s Bank of China shall be responsible for the interpretation of the Rules. Article 41 The Rules shall enter into force as of the date of its promulgation. |
The People’s Bank of China
2002-01-31