To expand the opening up of the foreign exchange market and boost the liberalization of the interbank bond market, the State Administration of Foreign Exchange (SAFE) has recently released the Circular of the State Administration of Foreign Exchange on Foreign Exchange Risk Management for Foreign Institutional Investors in the Interbank Bond Market (Huifa No. 5 [2017], "Circular").

The Circular mainly includes the following:

Firstly, any foreign institutional investor in the interbank bond market could handle the RMB-foreign exchange derivatives business with a qualified domestic financial institution to enhance the level of opening-up of the foreign exchange market.

Secondly, under the principle of transaction for actual requirements, foreign institutional investors shall carry out the foreign exchange derivatives business only for the purpose of hedging against the foreign exchange risk exposure arising from the investments in the interbank bond market with funds remitted from abroad, so as to guarantee the order of the foreign exchange market.

Thirdly, diverse trading tools and mechanisms will be provided for foreign institutional investors' foreign exchange derivatives business to facilitate foreign exchange risk management.

The Circular shall come into force as of the date of issuance.