People's Bank of China, Circular on Matters Relevant to Pilot Projects for Launch of Renminbi Interest Rate Swap Transactions

Issued: January 24 2006
Effective: as of date of issue
Applicability: The term "renminbi interest rate swap transactions" (Swap Transactions) refers to the act whereby transaction counterparties agree to exchange an agreed amount of principal in renminbi for a stream of cash flow within a certain period in the future. The cash flow for one party is calculated based on a floating interest rate and the other party's is calculated based on a fixed interest rate
(Article 1).

Main contents: Commercial banks approved by relevant regulatory authority to launch derivatives transaction business may, according to the authority granted by the regulatory authority, engage in interest rate swap transactions with their deposit and loan customers, and other commercial banks that have obtained the approval to launch derivatives transaction business, or provide interest rate swap transaction services for their deposit and loan customers. Other market investors may carry out swap transactions for the purpose of hedging with only commercial banks that have a deposit and loan business relationship with them and that have obtained the approval to launch derivatives transaction business (Article 2). Market interest rates of the national interbank bond market with the nature of a benchmark authorized and announced by the People's Bank of China, and one-year interest rate for time deposits announced by the People's Bank of China, etc. shall be the reference rates for swap transactions (Article 3).