The People´s Bank of China Decides to Expand Designated
Banks´ Forward Sale and purchase of Foreign Exchange Business and Launch RMB Swaps
against Foreign Currencies
To establish and
promote the socialist market economic system, enable the market to fully play
its role in resource allocation as well as to satisfy the needs of domestic
economic agents to avoid exchange rate risks, the People´s Bank of China
recently promulgated the Notice on Issues Regarding Expanding Designated
Banks´ Forward Sale and Purchase of Foreign Exchange Business to Customers and
Launching RMB Swaps against Foreign Currencies (hereinafter referred to
as the Notice).
In 1997, the
People´s Bank of China allowed Bank of China to be the first pilot bank to deal
in the business of forward sale and purchase of foreign exchange. After the
expansion of such pilot businesses both in 2003 and 2004 there are now 4
state-owned commercial banks and 3 joint-stock commercial banks licensed to conduct
the said business. Recent years have witnessed the enhancement of derivatives
trading and management by domestic banks, the steady progress of the
market-based interest rate reform as well as the gradual maturing of the money
market. Since the reform of the RMB exchange rate regime, the domestic economic
principals have been demanding for more and better exchange rate risk hedging
services. The forward foreign exchange business and RMB swaps against foreign
currencies are the major exchange rate risk management tools provided by banks
to customers for hedging these risks. While the above conditions are mature, it
is high time to expand the business of forward sale and purchase of foreign
exchange and launch RMB swaps against foreign currencies.
The Notice mainly
contains the following contents. First, the banks that shall engage in forward
foreign exchange business will be expanded. As long as a bank obtains the
qualification for spot sale and purchase of foreign exchange as well as for
derivatives trading, it shall be allowed to engage in forward sale and purchase
of foreign exchange after registration. Second, the market entry shall be
implemented in the form of registration so as to strengthen the internal
control and self-discipline of banks. Third, banks can make quotations to
customers based on their own capacity in terms of business management and risk
control so as to enhance the price discovery function, facilitate trading and
provide better service to customers. Fourth, the terms of trading have been
relaxed so that banks can decide at their discretion the maturity of trading
and the number of extensions. Fifth, the scope of trading has been expanded. In
addition to the present BOP items of trade in goods and service and investment
income, all kinds of current account transactions including transfer under
current account have been relaxed. Moreover, some kinds of transactions under
capital and financial accounts have also been added in.
The Notice as well
allows banks to engage in RMB swaps against foreign currencies (excluding
interest rate swaps for customers). Banks that have been approved to engage in
forward sale and purchase of foreign exchange above 6 months can engage in swap
business after registration with SAFE. Stipulations on swaps´ pricing method,
structure of trading maturity and etc. are in line with those governing forward
sale and purchase of foreign exchange. In addition to the various trading items
stipulated in forward sale and purchase of foreign exchange, the trading scope
for swap is also enlarged to some extent considering swap´s characteristics.
The Notice
clarifies that banks´ forward sale and purchase of foreign exchange to
customers as well as RMB swaps against foreign currencies shall abide by
regulations of foreign exchange administration, and that the truthfulness as
well as compliance involved in foreign exchange receipts and payments shall be
ensured. Regulatory authorities shall enhance the ability to fend off market
risks via off-site surveillance on the market.
Expanding forward
sale and purchase of foreign exchange as well as launching RMB swaps against
foreign currencies is most significant to facilitate the exchange rate risk
management of domestic economic agents, widen the service scope of banks and
cultivate the domestic derivative market of RMB against foreign currencies. In
sum, it is an important measure to reinforce the infrastructure construction of
foreign exchange market and improve the formation mechanism of RMB exchange
rate.
The Notice shall
take effect on the date of its promulgation.
Annex:
Glossary
Forward sale
and purchase of foreign exchange: The designated foreign exchange bank signs a forward contract with a
domestic business entity, fixing the currency, amount, exchange rate and date
for the future sale or purchase of foreign exchange. At maturity the two
parties implement such sale or purchase of foreign exchange as stipulated in
the contract. For example, there is an importing enterprise expecting a USD
payment for goods to an overseas exporter 3 months later. In order to lock in the
financial cost, the enterprise can sign a forward contract in advance with a
bank for purchase of foreign exchange. In this way, whatever the exchange rate
of RMB against USD will be in 3 months, the enterprise can purchase the USD
from the bank according to prearranged exchange rate so as to reduce the
exchange rate risk.
RMB swaps
against foreign currencies:
For the RMB swaps against foreign currencies, there are two transactions in
opposite directions featuring domestic currency against foreign currency
between a domestic entity and a bank. In the first transaction, the domestic
entity shall sell foreign exchange for RMB on the contracted exchange rate from
the bank, while in the second transaction, the entity buy foreign exchange with
RMB on the contracted exchange rate from the bank. The above transactions can
also be carried out in a reverse form. For example, an exporting enterprise
receives USD 5 million from an overseas importer and needs to sell the foreign
exchange for domestic RMB payment. Meanwhile, the enterprise expects to import
raw materials and make payment for USD 5 million in 3 months. At this time, the
enterprise can carry out the following 3-month RMB swap against foreign
currency with a bank: sell the USD 5 million right now and obtain corresponding
RMB, while purchase USD 5 million through a 3-month forward contract with RMB.
Via the above-mentioned transactions, the enterprise can square the positions
of different currencies in order to avoid exchange rate risks.
Notice of the People´s Bank of China on Issues
Regarding Expanding Designated Banks´ Forward Sale and Purchase of Foreign
Exchange Businesses to Customers and Launching RMB Swaps against Foreign
Currencies
(PBC Document No. 201 [2005])
To establish and
promote the socialist market economic system, enable the market to fully play
its role in resource allocation as well as to satisfy the needs of domestic
economic agents to avoid exchange rate risks, the People´s Bank of China
decides to expand designated banks´ forward sale and purchaseof foreign
exchange to customers and launch RMB swaps against foreign currencies
(hereinafter referred to as swap). Related issues are hereby notified as
follows:
1. Designated
banks shall satisfy the following conditions to conduct forward sale and
purchase of foreign exchange:
1)
having the license
granted by State Administration of Foreign Exchange or its local branch offices
(hereinafter referred to as SAFE) to conduct the business of sale and purchase
of foreign exchange and no record of major violations of foreign exchange
administration in the business of sale and purchase of foreign exchange in the
most recent 2 years.
2)
having the license
granted by China Banking Regulatory Commission to conduct derivatives trading.
3)
Other requirements
stipulated by SAFE
2. SAFE shall
carry out the regulation of designated banks´ sale and purchase of foreign
exchange business via registration.
1) Policy banks
and national commercial banks as legal persons shall register with SAFE to
conduct the business of sale and purchase of foreign exchange.
City commercial
banks, rural commercial banks, rural cooperative banks and foreign-funded banks
(wholly foreign-funded commercial banks, joint-stock banks and branches of
foreign commercial banks) as legal persons shall submit registration documents
to the local branch office of SAFE (including operations office, hereinafter
referred to as branches of SAFE ). The branches of SAFE shall conduct
preliminary verification of these documents and then report to State
Administration of Foreign Exchange Head Office for registration. Where a
foreign commercial bank is intended to establish more than 2 branches within
the territory of China
to conduct the business of forward sale and purchase of foreign exchange, the
registration may be undertaken by the major reporting bank for all its branches
in China.
2) When engaging
in foreign exchange forward business, branches of banks shall register with
local branch offices of SAFE presenting the authorization document issued by
their legal person institutions. SAFE shall verify their qualification and
compliance performance regarding the business of forward sale and purchase of
foreign exchange according to item 1 of Article 1 of this Notice.
3) Based on the requirements
and the procedures stipulated by this Notice, SAFE shall issue the notifying
letter of registration to a bank within 20 days after it receives the valid
registration documents.
3. Banks shall
submit the following registration documents to apply for the conduct of forward
sale and purchase of foreign exchange business:
1)
the registration report
to conduct the business of forward sale and purchase of foreign exchange;
2)
the internal
regulations and rules governing froward sale and purchase of foreign exchange,
including:
a. the operational procedures of the business
b. the
statistics and reporting system
c. the risk
exposure and positions control system
d. the
pricing management system
e. the
accounting verification system
3)
the legal documents evidencing
the qualification to conduct derivatives trading
4)
other documents and
materials required by SAFE
4. Banks shall
abide by the following regulations to conduct the business of forward sale and
purchaseof foreign exchange:
1)
banks may conduct the
business of forward sale and purchase of foreign exchange for domestic
entities´ transactions under current account;
2)
banks may conduct the
business of forward sale and purchase of foreign exchange for the following
domestic entities´ transactions under capital and financial accounts:
a. repayment of foreign exchange loans issued by the
banks;
b.
repayment of external borrowings registered with SAFE;
c. receipt
and payment arising from overseas direct investment which have been registered
with SAFE;
d. receipt
of equity funds of foreign funded enterprise which have been registered with
SAFE;
e. receipt
of foreign exchange arising from domestic entity´s overseas listing which have
been registered with SAFE;
f. other
receipt and payment of foreign exchange which have been approved by SAFE.
3) When conducting
the business of forward sale and purchase of foreign exchange, banks shall
abide by regulations of foreign exchange administration and verify the
truthfulness as well as compliance of domestic entity´s receipt and payment of
foreign exchange. At maturity of the forward contract for sale and purchase of
foreign exchange, banks shall perform the contract after having examined the
valid documents provided by the domestic entities as required by regulations of
foreign exchange administration.
4) Banks shall
decide at their discretion the maturity structure, extension numbers of the
contract and the exchange rate.
5. Banks that have
been approved to conduct the business of forward sale and purchase of foreign
exchange above 6 months may deal in RMB swaps against foreign exchange (not
involving interest rate swap) after registration with SAFE in line with the
procedures stipulated in Article 2 of this Notice.
1)
Banks shall abide by
all the regulations governing forward sale and purchase of foreign exchange
stipulated in Article 4 of this Notice to deal in swap business.
2)
Apart from the business
scope stipulated in items 1 and 2 of Article 4 of this Notice, banks may
conduct swaps for domestic entity´s RMB funds. The foreign exchange acquired by
a domestic entity via swap transactions shall be used in line with regulations
of foreign exchange administration.
Where a domestic
entity engages in swap on foreign exchange fund under current account, the
foreign exchange resulted from contract settlement may be credited into the
entity´s foreign exchange account under current account.
6. Banks shall
abide by SAFE´s regulations on position management for sale and purchase of
foreign exchange when conducting the business of forward sale and purchase of
foreign exchange and swaps.
7. Banks shall
report relevant statistics on the businesses of forward sale and purchase of
foreign exchange as well as swaps to SAFE in accordance with the requirements
in the annex of this Notice and other regulations of foreign exchange
administration.
8. The People´s
Bank of China carries out supervision and regulation on designated banks´
forward sale and purchase of foreign exchange as well as swaps business via
SAFE. SAFE at all levels shall strengthen the supervision and regulation on
designated banks in accordance with the spirits of this Notice. In case of
violation of the stipulations of this Notice, designated Banks shall be
penalized by SAFE in line with the Regulations on Foreign Exchange
Administration and other related regulations of foreign exchange
administration.
9. This notice
takes effect on the date of issuance and shall prevail if running counter to
any stipulations previously made.
On receipt of this
Notice, each local SAFE branch shall immediately forward it to the city
commercial banks, rural commercial banks, rural cooperative banks and
foreign-funded banks within its jurisdiction.
People´s Bank of
China
2005/8/2
Annex:
Statistical
Requirements for the Business of
Forward Sale and purchase of Foreign Exchange and Swap
The designated
banks engaged in the business of forward sale and purchase of foreign exchange
and swap (hereinafter referred to as " the reporting institution") shall
accurately, timely and fully fill in and report the statistical statements in
relation to forward sale and purchase of foreign exchange and swap business in
accordance with the requirements of this annex and other regulations of foreign
exchange administration.
1.
Reporting Time
1) Tables 1 to 8
are the forms to be reported for every ten days ( the first ten days of a
month, the second ten days of a month, same for the following) and for the
whole month. The reporting institution shall submit the statistic forms to SAFE
within 3 working days after the end of each ten days of a month and each month.
For Table 8, the
reporting institution shall submit at the same time exchange rates for forward
sale and purchase of foreign exchange as well as swap in each trading day to SAFE.
At the end of each month, only the exchange rates for the trading days of the
last ten days of the month are required.
2) Besides the
above two statistic regulatory stipulations, the reporting institution shall
comply with SAFE´s requirements for reporting Table 1, 4, 5 and 8.
2. Reporting
Methods
1) Before SAFE
complete the construction and improvement of the information monitoring systems
such as the Banks´ Sale and purchase of Foreign Exchange Statistic
System, the reporting institution shall submit to SAFE the statistic tables in
this annex via fax or e-mail ( the e-file shall be in the form of EXCEL).
Fax No:
010-68402315; E-mail: yinhangchu@mail.safe.gov.cn
2) The major
reporting branch of a foreign-funded commercial bank shall consolidate the data
in regard to forward sale and purchase of foreign exchange and swap within the territory of China for all its branches and then submit the consolidated
data to SAFE.
3. Instruction for
Filling in the Tables
1) Table 1
a. This
table concerns the distribution of maturities of the outstanding businesses of
forward sale and purchase of foreign exchange at the end of each reference
period. The "Sale" and "Purchase" in the table refer to the
contract value in terms of the remaining trading period.
b. For the
trading with a performance date agreed by both parties, the contract value
shall be summed into the table according to the banks´ quotated maturities to
the customers.
2) Table 2 and Table
6
a. In case the
contract for forward sale and purchase of foreign exchange being performed in
the reporting period, statistics shall be recorded separately in Table 2
according to the trading directions and trading attributes. With the current
Statistic Statement for Banks´ Sale and Purchase of Foreign Exchange, the
reporting institution shall only cover the data for the spot sale and purchase of
foreign exchange in accordance with the Regulations on the Reporting of
Banks´ Statistics on Sale and purchase of Foreign Exchange for Ten Days, for
every Month and Related Detailed Statements ( SAFE BOP Document No.
205, 1997).
b. In case
swap contract being performed in the reporting period, statistics shall be
recorded separately in Table 6 according to the trading directions and trading
attributes.
c. Before
the launch of the new banks´ system for sale and purchase of foreign exchange
in 2006, the reporting institution shall only cover the contract performance
data for the forward sale and purchase of foreign exchange to customers and
swap according to trading attributes in Table 2 and Table 6. With the current
Statistic Statement for Banks´ Sale and purchase of Foreign Exchange, the
reporting institution shall only cover the data of spot sale and purchase of
foreign exchange in accordance with the Regulations on the Reporting of
Banks´ Statistics on Sale and Purchase of Foreign Exchange for Ten Days, for
Every Month and Related Detailed Statements ( SAFE BOP Document No.
205, 1997).
3. Table 3 and
Table 7
The "Districts"
rows in Table 3 and Table 7 shall be filled in according to the jurisdiction to
which the branches of the reporting institution are subject. For a foreign-funded
commercial bank, these rows shall be filled by its major reporting bank according
to the jurisdictions to which the branches of the bank are subject.
4. Table 4
a. Cumulative
Outstanding Value of the Current Period = Cumulative Outstanding Value of the
Previous Period + Contracted Value of the Current Period – Contract Performance
Value of the Current Period
b. In case
of default or rollover of the forward contract at maturity, the reporting
institution shall record the default value and rollover value under the Default
column and Rollover column respectively.
5. Table 5
a.
According to the directions of the two transactions involved in a swap
contract, the " Contracted Value of Swap" is categorized into " Sale followed
by Purchase" and "Purchased followed by Sale".
b. In case
of default of the swap contract at maturity, the reporting institution shall
record the default value under the default column of "Contracted Value of Swap".
6. Table 8
The exchange rate
data of this table shall be based on the listed prices of banks´ forward sale
and purchase of foreign exchange to customers at the end of the working day.
7. Others
a. For all
the statistic tables in this annex, the statistics of the same coverage shall
also have the same underlying calculation relations.
b. The
various foreign currencies used to denominate banks´ forward sale and purchase of
foreign exchange to customers shall be converted to USD and reserve the
integers only.
c. The sale
and purchase in various tables in this annex both refer to customers trading
directions.
Table 1 ( ) Statistics of
Banks´ Outstanding Business of Forward Sale and Purchase of Foreign Exchange
Year Month(
Ten Days)End
Unit：Ten
thousand USD
|
Remaining Period to Maturity
|
Outstanding Forward
|
|
Sale
|
Purchase
|
|
Less than 7 days
(including )
|
|
|
|
Between 7 days
to 1month (including)
|
|
|
|
Between 1 month
to 3 months (including)
|
|
|
|
Between 3 months
to 6 months (including)
|
|
|
|
Between 6 months
to 9 months (including)
|
|
|
|
Between 9 months
to 1 year (including)
|
|
|
|
More than 1 year
|
|
|
|
Total Value
|
|
|
Date：
Department Signature：
Table 2 ( ) Statistics of
Banks Forward Sale and Purchase (by trading attributes)
Year Month(
Ten Days)
Unit：Ten thousand USD
|
Trading Attribute
|
Forward Contract Performance Value
|
|
Sale
|
Purchase
|
|
Current Account
|
|
|
|
Capital and
Financial Account
|
|
|
Date：
Department Signature：
Table 3 （ ）Statistics
of Banks Forward Sale and Purchase（by
trading districts）
Year Month(
Ten Days)
Unit：Ten thousand USD
|
District
|
Performance Value for Forward Sale
|
Performance Value for Forward Purchase
|
District
|
Performance Value for Forward Sale
|
Performance Value for Forward Purchase
|
|
Beijing
|
|
|
Hubei
|
|
|
|
Tianjing
|
|
|
Hunan
|
|
|
|
Hebei
|
|
|
Guangdong
|
|
|
|
Shanxi
|
|
|
Guangxi
|
|
|
|
Inner Mongolia
|
|
|
Hainan
|
|
|
|
Liaoning
|
|
|
Chongqing
|
|
|
|
Jiling
|
|
|
Sichuan
|
|
|
|
Heilongjiang
|
|
|
Guizhou
|
|
|
|
Shanghai
|
|
|
Yunnan
|
|
|
|
Jiangsu
|
|
|
Tibet
|
|
|
|
Zhejiang
|
|
|
Shanxi
|
|
|
|
Anhui
|
|
|
Gansu
|
|
|
|
Fujian
|
|
|
Qinhai
|
|
|
|
Jiangxi
|
|
|
Ningxia
|
|
|
|
Shandong
|
|
|
Xinjiang
|
|
|
|
Henan
|
|
|
Total Value
|
|
|
Date：
Department Signature：
Table 4（ ）Statistics of Banks Forward Sale and Purchase（Consolidated Statement）
Year Month(
Ten Days)
Unit：Ten thousand USD
|
Forward
Sale of Foreign Exchange
|
Contracted Value of the Reporting Period
|
|
|
Cumulated Contracted Value of the Reporting Period
|
|
|
Performance Value of the Reporting Period
|
|
|
Outstanding Value at the end of the Reporting Period
|
|
|
Default Value of the Reporting Period
|
|
|
Rollover Value of the Reporting Period
|
|
|
Forward Purchase of Foreign Exchange
|
Contracted Value of the Ref. Period
|
|
|
Cumulated Contracted Value of the Reporting Period
|
|
|
Performance Value of the Reporting Period
|
|
|
Outstanding Value at the end of the Reporting Period
|
|
|
Default Value of the Reporting Period
|
|
|
Rollover Value of the Reporting Period
|
|
Date：
Department Signature：
Table 5 （ ）Statistics
of Banks´ Swap（by trading maturity）
Year Month(
Ten Days)
Unit：Ten thousand USD
|
Trading Maturity
|
Contracted Value for Swap
|
In-between：Trading
Mode
|
|
Sale
followed by Purchase
|
Purchase followed by Sale
|
|
Spot against Forward
|
|
|
|
|
Spot against less than 1 year(including)
|
|
|
|
|
Spot against more than 1 year
|
|
|
