The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government; the SAFE branches in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo; and all policy banks, state-owned commercial banks, and shareholding commercial banks:

In order to further promote the development of the Renminbi-against-Forex options market and to satisfy the requirements of economic entities to hedge against exchange-rate risks, in accordance with the Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning Renminbi-Against-Forex Options Trading (Hui Fa No. 8 [2011]), the relevant issues with regard to the banks’ handling of the Renminbi-against-Forex options portfolio business are hereby notified as follows:

I. The options portfolio stated in this Circular refers to the portfolio consisting of the purchase of a common European option of Renminbi against a foreign currency or the sale of one with the same currency, time limit, and principal specified in the contract, including the following two types:

(1) Foreign exchange put options and risk reversal options portfolio: in view of the actual future needs for foreign exchange settlement, the client purchases a foreign exchange put option with a lower strike price (the strike price to be measured in RMB converted from a unit of foreign exchange, the same below) and meanwhile sells a foreign exchange call option with a higher strike price.

(2) Foreign exchange call options and risk reversal options portfolio: in view of the actual future needs to purchase foreign exchange, the client sells a foreign exchange put option with a lower strike price and meanwhile purchases a foreign exchange call option with a higher strike price.

II. The banks shall comply with the principle of actual needs and shall abide by the following provisions when handling the options portfolio business for their clients:

(1) The options portfolio shall follow principles of integrity. Any operation by the client on the options portfolio, including but not limited to contract signing, position offsetting, and choice of delivery method, shall be on the entire options portfolio and shall not be on any single option trading chosen from the options portfolio. The signing of the contract between the banks and the clients in terms of the options portfolio business and any changes thereto shall be reflected in the same product specification.

(2) Prior to the signing of an options contract, the banks shall require that their clients furnish a basic business contract and carry out the required examination of the contract so as to ensure that the options business that is to be conducted complies with the hedging principles.

(3) Upon the maturity of the options portfolio, only one buyer of the option may exercise the option and the principle that the clients have priority to exercise the option shall be followed, i.e., only where the clients decide not to exercise the option purchased by themselves, can the banks choose whether to exercise their options; where the clients choose to exercise the option, the banks shall not exercise the option.

(4) If the clients choose to exercise their option, the banks must conduct an authenticity and regulatory examination of the compliance of the receipts and payments of foreign exchange delivered by the clients. Where the clients as the sellers of the option are unable to exercise their option, the matter shall be dealt with by the parties in accordance with commercial principles.

Upon the maturity of the options portfolio, where both the clients and the banks choose not to exercise the option, the clients may handle a part of the business for spot settlement and sales of foreign exchange upon the strength of the relevant documents.

(5) With respect to the options portfolio, the premium received by the clients from the sales of the options shall not exceed that paid by them for the purchase of the options.

III. Banks qualifying for Renminbi-against-Forex options trading on the inter-bank foreign exchange market and qualifying to operate the Renminbi-against-Forex options business for clients may handle the options portfolio business for clients. The bank branches qualifying to operate the Renminbi-against-Forex options business for clients may, after being authorized by their legal persons thereof (branches of foreign commercial banks are deemed to be legal persons), handle the options portfolio business for clients.

IV. The banks shall, during the handling of the options portfolio business, respectively measure and manage the Delta options trading positions in accordance with Circular (Hui Fa No.8 [2011]) and other relevant provisions.

V. The banks shall, during the handling of the options portfolio business, abide by the following statistical requirements:

(1) The banks shall deem their clients’ exercise of options based on the performance of the contracts on the forward settlement and sales of foreign exchange, and shall incorporate such exercises into the statistics on the performance of the contracts on the forward settlement and sales of foreign exchange in the Monthly (Ten-day) Report on Statistics on Foreign Exchange Settlement and Sales by Banks in accordance with the Circular of the State Administration of Foreign Exchange on Distribution of the Statistical System for the Settlement and Sales of Foreign Exchange by Banks (Hui Fa No.42 [2006]).

(2) The banks shall incorporate all the options trading in the options portfolio business into the Daily Report on the Comprehensive Position Management of Foreign Exchange Settlement and Sales by Banks and the statistical statements set forth in the Circular (Hui Fa No.8 [2011]) on a case-by-case basis. In particular, the Statistics on the Renminbi-against-Forex Options Business Handled by the Banks for Clients set forth in Annex 2 of the Circular (Hui Fa No.8 [2011]) shall be adjusted in accordance with the provisions of the annex to this Circular.

VI. The scope of the clients, the time limit for trading, the currency of the options premium, the position offsetting, and the delivery method of the options portfolio business handled by the banks shall comply with the relevant provisions of the Circular (Hui Fa No.8 [2011]).

VII. This Circular shall come into force as of December 1, 2011.

The branches and foreign exchange administration departments of the SAFE shall, upon receipt of this Circular, forward it immediately to the urban commercial banks, rural commercial banks, rural cooperative banks, and foreign-funded banks within their respective jurisdictions. With respect to any problems arising from implementation, please contact the Department of the Balance of Payments of the SAFE. Tel: 010-68402385, 68402313.