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the State Administration of Foreign Exchange
Circular of the State Administration of Foreign Exchange on Printing and Distributing the “Guidelines for Inter-bank Foreign Exchange
Market Makers (for Trial Implementation)”
Hui Fa [2005] No. 86
The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange of all provinces, autonomous
regions, and municipalities directly under the Central Government, and the municipal branches of the State Administration of Foreign
Exchange in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo; all policy banks, wholly state-owned commercial banks and joint-stock commercial
banks; China Foreign Exchange Center,
With a view to further developing the foreign exchange market, promoting the liquidity in the foreign exchange market, giving a fuller
play to the basic role of the market in the allocation of resources, and further improving the formation mechanism of Renminbi exchange
rate, the State Administration of Foreign Exchange decides to introduce the market maker system into the inter-bank foreign exchange
market, and has formulated the “Guidelines for Inter-bank Foreign Exchange Market Makers (for Trial Implementation)” (see annex,
hereinafter referred to as the “Guidelines”).
The designated foreign exchange banks that satisfy the conditions as listed in the “Guidelines” may, upon the strength of the prescribed
application materials, apply to the State Administration of Foreign Exchange for the qualifications of an market maker in the inter-bank
foreign exchange market, and shall, after being ratified by the State Administration of Foreign Exchange, perform the market-making
obligations according to the “Guidelines”. The State Administration of Foreign Exchange will evaluate the market makers at regular
intervals and check them at irregular intervals, and will make adjustments where necessary.
All branches of the State Administration of Foreign Exchange shall, upon receipt of this Circular, immediately transmit it to the
sub-branches, urban commercial banks, rural commercial banks, rural cooperative banks, rural credit cooperatives and foreign banks
within their respective jurisdictions.
In case of any question arising in the implementation of the “Guidelines”, please contact the Department of Balance of International
Payments of the State Administration of Foreign Exchange. Tel: 010-68402181, 68402099.
Hereby notified.
Annex:Guidelines for Inter-bank Foreign Exchange Market Makers (for Trial Implementation)
State Administration of Foreign Exchange
November 24, 2005 Annex:Guidelines for Inter-bank Foreign Exchange Market Makers (for Trial Implementation)
Article 1
With a view to further developing the foreign exchange market and promoting the liquidity of China’s foreign exchange market, the
“Guidelines for Inter-bank Foreign Exchange Market Makers (for Trial Implementation)” (hereinafter referred to as the “Guidelines”)
are formulated in accordance with the “Law of the People’s Republic of China on the People’s Bank of China”, the “Regulation of the
People’s Republic of China on the Administration of Foreign Exchange”, the “Interim Provisions on the Administration of the Inter-bank
Foreign Exchange Market” (Yin Fa [1996] No. 423) and the “Circular of the People’s Bank of China on the Relevant Issues for Accelerating
the Development of the Foreign Exchange Market” (Yin Fa [2005] No. 202).
Article 2
Inter-bank foreign exchange market makers as mentioned in the “Guidelines” mean the inter-bank foreign exchange market members ratified
by the State Administration of Foreign Exchange to assume the obligations of continuously providing market members with buying and
selling prices when trading in exchange of Renminbi and foreign currency in China’s inter-bank foreign exchange market.
Article 3
An inter-bank foreign exchange market maker shall satisfy the following basic conditions:
(1)
It abides by the relevant provisions of the People’s Bank of China and the State Administration of Foreign Exchange, and has no records
of violation of laws and regulations in respect of the settlement and sale of foreign exchange and foreign exchange market transaction
within the two years before submitting the application for the qualifications of an inter-bank foreign exchange market maker;
(2)
It has a sound foreign exchange risk management system, an internal control system, and strong capacity of financing in Renminbi and
foreign currencies;
(3)
It manages the overall position in settlement or sales of foreign exchange in a centralized way;
(4)
It has been qualified as an inter-bank foreign exchange market member (hereinafter referred to as market member) for no less than
two years;
(5)
In the last half year, the whole bank ranks within the top 30 in respect of the scale of Renminbi and foreign currency transaction
on the inter-bank spot foreign exchange market;
(6)
In the last half year, the whole bank ranks within the top 50 in respect of the scale of cross-border payments for customers within
the territory of China; and
(7)
The whole bank’s capital adequacy ratio of the last year reaches 8% or its foreign exchange capital is no less than an equivalent
amount of USD 100 million.
Any financial institution satisfying the conditions as listed in this Article may file an application to the State Administration
of Foreign Exchange. The State Administration of Foreign Exchange may, according to the abovementioned conditions and the market
situation, select and adjust inter-bank foreign exchange market makers.
Article 4
An inter-bank foreign exchange market maker may enjoy the following rights:
(1)
right to moderately enlarge the range of overall position in settlement or sales of foreign exchange, and to practice flexible position
management;
(2)
right to apply to the People’s Bank of China for the qualification of a Grade 1 foreign exchange trader; and
(3)
priority to participate in the pilot of new business on the foreign exchange market.
Article 5
An inter-bank foreign exchange market maker shall perform the following obligations:
(1)
to continuously provide within the prescribed time for transaction, the buying and selling prices of Renminbi to the main currencies
(including USD) and of the main currencies (including USD) to Renminbi, on the inter-bank spot auction and inquiry foreign exchange
market. Among such prices, the prices quoted on the spot auction market shall be effective tradable prices, and the prices quoted
on the spot inquiry market may be reference prices. The market maker may negotiate with its counter-party to fix up the transaction
price according to such information of the counter-party on the credit authorization and funds, etc. and on the basis of the prices
quoted;
(2)
not to quote prices beyond the floating margin prescribed by the People’s Bank of China for inter-bank market foreign exchange prices
on the inter-bank spot auction and inquiry foreign exchange market;
(3)
to trade in foreign exchange honestly on the foreign exchange market, and not to manipulate market prices illegally or by other foul
means;
(4)
to strictly abide by the relevant administrative provisions on foreign exchange market transactions and on overall position in the
settlement or sales of foreign exchange, and to timely submit the daily statements on overall position in the settlement and sale
of foreign exchange; and
(5)
to submit, on the monthly basis, to the State Administration of Foreign Exchange a report on the information about its transactions,
including its trade volume, the number of transactions, and market-making transactions; to timely report the quoted market-making
prices, the major events in its transactions, the major events (such as adjustment of the credit rate) of itself and its overseas
parent bank; to, report, on the quarterly basis, information on its business operation, open foreign exchange position, capital adequacy
ratio, and transactions, analysis of international foreign exchange market trends, and other relevant information.
Article 6
For a market member satisfying the conditions as listed in Article 3 and willing to assume the market-making obligations on inter-bank
foreign exchange market, its head office or the authorized branch thereof that has the power to manage positions in a centralized
way shall file an application to the State Administration of Foreign Exchange, and the market member may become an inter-bank foreign
exchange market maker after being ratified by the State Administration of Foreign Exchange.
Article 7
A market member shall submit the following materials when applying for being an inter-bank foreign exchange market maker:
(1)
an application report in which it promises to strictly perform the market-making obligations;
(2)
a feasibility analysis report that meets the conditions as listed in Article 3 (mainly including foreign exchange risk management
and internal control system, the whole bank’s transaction scale of Renminbi and foreign currencies on the inter-bank spot foreign
exchange market during the last half year, the whole bank’s scale of cross-border payments for customers within the territory of
China during the last half year, the whole bank’s capital adequacy ratio, capital size, foreign exchange exposure, liquidity ratio,
etc. in the last year); and
(3)
other materials and documents as required by the State Administration of Foreign Exchange.
Article 8
The State Administration of Foreign Exchange shall, within 15 working days as of the date of receipt of the application materials,
notify in writing the applicant of the ratification opinions with a copy sent to China Foreign Exchange Center.
Article 9
The State Administration of Foreign Exchange shall uniformly verify and adjust the overall positions of market makers in the settlement
and sale of foreign exchange. Each market maker shall, by 13:30 on each trading day, submit as required, to the State Administration
of Foreign Exchange, the daily report of the last trading day on its overall positions in the settlement and sale of foreign exchange,
with a copy sent to the local branch or foreign exchange administrative department of the State Administration of Foreign Exchange.
Article 10
A market maker shall trade through the inquiry transaction system and the auction system on the inter-bank foreign exchange market.
The State Administration of Foreign Exchange shall supervise the market makers’ price quotations and transactions, etc.
Article 11
The State Administration of Foreign Exchange shall on the basis of such information as market maker’s price quotations, transactions,
submission of documents, and liquidation, evaluate market makers at regular intervals and check them at irregular intervals and shall
suspend or cancel the status of the market makers who no longer meet the basic conditions as are required of qualified market makers
or who refuse to perform the market-making obligations.
Article 12
A market maker who meets with institutional modification shall timely report to the State Administration of Foreign Exchange for going
through the formalities for modification of its status. Where a market maker needs to suspend or waive the market-making obligations,
it shall file it with the State Administration of Foreign Exchange for record and make explanations 15 working days in advance.
Article 13
For a market maker who waives its status as a market maker on its initiative or whose status is cancelled, the relevant rights it
enjoyed and obligations it assumed when serving as an inter-bank foreign exchange market maker shall be terminated automatically.
Article 14
The power to interpret these “Guidelines” shall reside in the State Administration of Foreign Exchange. These “Guidelines” shall go
into effect on the date of printing and distribution.
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