People's Bank of China, Circular on Issues Relevant to Expanding Clients' Forward Settlement and Sale of Foreign Exchange Business and Launching of Swaps Business Between Renminbi and Foreign Currencies of Designated Foreign Exchange Banks

Issued: August 2 2005
Effective: as date of issue
Applicability: In the event of a conflict between previous provisions and this Circular, this Circular shall prevail (Section Nine).

Main contents: Designated foreign exchange banks (hereinafter, Banks) that wish to engage in forward settlement and sale of foreign exchange business shall have obtained the qualifications to engage in settlement and sale of foreign exchange business verified by the State Administration of Foreign Exchange (SAFE) and its branches and sub-branches and the qualifications to engage in derivatives transactions verified by the China Banking Regulatory Commission (Section One). Urban commercial Banks, foreign-invested commercial Banks, Sino-foreign equity joint venture commercial Banks, branches of foreign commercial Banks applying to engage in forward settlement and sale of foreign exchange business shall have their legal persons (branches of foreign commercial Banks will also be deemed as legal persons) submit information for record filing to the branches of SAFE at the locality (Section Two). Banks may handle forward settlement and sale of foreign exchange transactions for current account transactions of domestic institutions. Banks may handle forward settlement and sale of foreign exchange transactions for capital account and financial transactions for domestic institutions within the following scope: (1) repayment of foreign exchange loans for their own account; (2) repayment of foreign borrowings registered with SAFE and its branches and sub-branches; (3) foreign exchange revenue and expenditure of offshore direct investments registered with SAFE and its branches and sub-branches; (4) foreign exchange capital revenue of foreign-invested enterprises registered with SAFE and its branches and sub-branches; and (5) foreign exchange revenue from offshore listings of domestic institutions registered with SAFE and its branches and sub-branches (Section Four(2)). The term structure, number of contract extensions and exchange rates for forward settlement and sale of foreign exchange transactions shall be determined by Banks themselves (Section Four(4)). Banks allowed to engage in forward settlement and sale of foreign exchange business for six months or more may, after record filing with SAFE or its branches and sub-branches, handle swap transactions between renminbi and foreign currencies that do not involve interest rate swaps. Administrative provisions regarding pricing method and transaction term structure, etc. for swap transactions will be the same as that for forward settlement and sale of foreign exchange transactions. With respect to the scope of transactions, apart from various transactions provided under the forward sale and settlement of foreign exchange business, Banks may handle swap transactions for renminbi funds of domestic institutions (Article 5). Where foreign exchange funds from current account items are used by domestic institutions to handle swap transactions, foreign exchange funds recovered from performance of contracts may be put into the foreign exchange accounts for current account items of the domestic institutions (Article 5).