People's Bank of China, Provisions for the Administration of the Forward Rate Agreement Business

中国人民银行远期利率协议业务管理规定

November 02, 2007 | BY

clpstaff &clp articles &

PBOC launches forward rate agreements.

Clp Reference: 3600/07.09.29 Promulgated: 2007-09-29 Effective: 2007-11-01

Promulgated: September 29 2007
Effective: November 1 2007

Interpreting Authority: People's Bank of China (PBOC)

Applicability: The term "forward rate agreement" (FRA) refers to a financial contract whereby both parties to the transaction agree to exchange at a certain date in the future and within the term of the agreement the interest payments on a certain principal calculated according to the interest rate stipulated in the contract and the reference rate respectively. The interest paid by the buyer is calculated according to the interest rate stipulated in the contract while the interest paid by the seller is calculated according to the reference rate (Article 2).

Main Contents: The reference rate for FRAs shall be the interest rate for the interbank market that serves as a benchmark announced by organizations such as the National Interbank Funding Centre upon authorization of the PBOC, or the base rate announced by the PBOC. The specific rate shall be jointly agreed upon by both parties to the transaction (Article 3). Among the participants in the National Interbank Funding Centre (Market Participants), the financial institutions with the qualifications of a market maker or the qualifications to engage in clearance agency business may carry out FRA transactions with any other Market Participant. Other financial institutions may carry out FRA transactions with all financial institutions. Non-financial institutions may only carry out FRA transactions for the purpose of hedging with financial institutions with the qualifications of a market maker or the qualifications to engage in clearance agency business (Article 4).

Related Legislation: PRC People's Bank of China Law (Revised), Dec 27 2003, CLP 2004 No.1 p.4

clp reference:3600/07.09.29promulgated:2007-09-29effective:2007-11-01

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