General Office of the China Banking Regulatory Commission, Circular on Issues Relevant to the Engagement in Foreign Exchange Margin Trading by Banking Financial Institutions

Issued: June 6 2008

Applicability: For the purposes of this Circular, the term "foreign exchange margin trading " means the leveraged foreign exchange trading service that a banking financial institution provides to an investor. Its main features are as follows: after an investor, with the objective of making a profit on foreign exchange trading, actually invests a certain amount of money as a trading margin, it can amplify the amount thereof by a certain leverage multiple, thereby permitting the actual contract amount of a foreign exchange transaction to exceed the amount of the trading margin actually invested by it.

Main Contents: The Circular states that at the moment, as there are increasingly prominent market risk, operational risk, risk of information technology systems and risk of insufficient evaluation of client suitability involved in the engagement in foreign exchange margin trading by banking financial institutions, further regulation of the market is necessary. The China Banking Regulatory Commission will study and formulate relevant administrative measures for banking financial institutions to launch such business (Article 1). Prior to the official promulgation of the relevant administrative measures, banking financial institutions may not engage in or engage in in a disguised manner foreign exchange margin trading (Article 2). Banking financial institutions that have already engaged in foreign exchange margin trading prior to the issuance of this Circular may not provide such services to new clients or conduct new transactions for existing clients, except for transactions for liquidating a client's position (Article 3).