The branches and foreign exchange administration departments of the State Administration of Foreign Exchange (the SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government; the SAFE branches in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo, all policy banks, state-owned commercial banks, joint-stock commercial banks, and the China Foreign Exchange Trade System:
For the purpose of promoting foreign exchange market development, the following relevant matters are hereby notified concerning adjustments in the business management of RMB foreign exchange derivative products according to the Interim Measures for Management of Conducting Settlements and Sales of Foreign Exchange by Designated Foreign Exchange Banks and other legal and regulatory stipulations:
I. Streamlining access administration for foreign exchange swap and currency swap businesses.
Banks and their branches that have obtained (including during the period prior to implementation of this Circular) qualifications for forward settlements and sales of foreign exchange business in line with the Circular of the People’s Bank of China Concerning Expansion of Forward Foreign Exchange Settlements and Sales to Clients and Launching RMB and Foreign Currency Swap Businesses by Designated Foreign Exchange Banks (Yinfa No. 201 [2005]) may automatically obtain business qualifications for foreign exchange swaps and currency swaps, and are not required to apply again for filing.
Before the banks and their branches newly launch foreign exchange swap and currency swap business for clients, they shall confirm with the State Administration of Foreign Exchange (SAFE) or their branches and sub-branches the statistics on their settlements and sales of foreign exchange and other administrative matters.
II. Increasing the principal exchange modes for currency swap business.
Banks can repay the principal and interest for domestic and overseas foreign currency liabilities of clients in conformity with the foreign exchange administrative stipulations, conduct currency swap business without actual exchanges of the principal on the effective date of the contract or currency swap business with or without actual exchanges of the principal on the date of maturity, and can add the principal exchange mode for inter-bank foreign exchange market currency swap business accordingly. For foreign exchange exposure generated in the aforementioned currency swap business, banks can integrate it into their overall position for the settlement and sale of foreign exchange for uniform management.
III. Supporting banks to refine options business pricing and risk management
With regard to the balance settlement options business conducted for clients or on the inter-bank foreign exchange market by banks in line with the Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning Options Transactions of RMB to Foreign Exchange (Huifa No. 8 [2011]), the reference price may be determined by both trading partners in line with the business principles upon consultation, but it shall be the authentic and effective domestic market exchange rate. Banks can select a reasonable and proper approach and the parameters based on their own discretion to measure the Delta position of the options and to integrate them into the overall position of the settlements and sales of foreign exchange for universal management.
IV. When banks conduct RMB foreign exchange derivative product business for clients, they shall follow the principles of “knowing your clients,” “knowing your business,” and “due diligence reviews,” and shall sell the right products to the right clients, strengthen risk disclosure and their own risk management, and conduct business in a prudent and compliant manner.
V. The China Foreign Exchange Trade System shall, in line with the stipulations in this Circular, adjust the relevant trading rules and systems of the inter-bank foreign exchange market accordingly and shall do a good job in terms of technical support.
VI. This Circular will enter into effect as of January 1, 2014.
Upon receiving this Circular, the branches and foreign exchange departments of the SAFE shall immediately distribute it to the banks and currency brokerage companies under their respective jurisdictions.
The Circular is hereby notified.
State Administration of Foreign Exchange
December 16, 2013
