State Administration of Foreign Exchange, Guidelines for Market Makers of the Interbank Foreign Exchange Market

There are three types of market makers: spot trading market makers, forward swap trading market makers and comprehensive market makers. Spot trading market makers are banks that make a market in the interbank spot competitive bidding and price inquiry foreign exchange markets. Forward swap trading market makers are banks that make a market in the interbank forward, foreign exchange swap, and currency swap markets. Comprehensive market makers are banks that make a market in the spot, forward, foreign exchange swap, currency swap and other such foreign exchange markets (Article 3).

The measures on market making for newly-approved trading products in the interbank foreign exchange market shall be separately stipulated by Safe (Article 21).

Main contents: Before applying for the qualifications for market makers of interbank foreign exchange market, banks shall apply for the qualifications for trial market makers of the relevant market-making product. The basic qualifications requirements for a trial market maker include:

(1) being a financial institution in the bank category that has been a member of the interbank foreign exchange market for at least two years,

(2) the bank as a whole having a capital adequacy ratio of at least 8% for the preceding year; and

(3) the upper limit on the overall position of (centrally-managed) foreign exchange settlement and sale as determined by Safe being at least US$200 million (Article 6).

The basic requirements for a spot trading and forward swap trading market maker of the interbank foreign exchange market include:

(1) market making on a trial basis for at least two years for the trading product it is applying for (where a bank has obtained the qualifications for market maker of the interbank foreign exchange market as filed with and approved by Safe prior to January 1 2011, the time period in which it provided dual buying and selling prices on the interbank forward, foreign exchange swap, and currency swap markets shall be deemed the time period for trial market making);

(2) the bank as a whole having a capital adequacy ratio of at least 9% in the most recent two years;

(3) the bank as a whole ranking among the top 50 in the size of cross-border receipts and payments on behalf of its customers in the most recent two years, and

(4) the upper limit on the overall position of (centrally managed) foreign exchange settlement and sale as determined by Safe being at least US$500 million (Article 7).

The basic requirements for a comprehensive market maker of the interbank foreign exchange market include:

(1) having been a spot trading market maker for at least five years and a forward swap trading market maker for at least one year;

(2) the bank as a whole ranking among the top 20 in the size of cross-border receipts and payments on behalf of customers in the most recent two years,

(3) the bank as a whole having a capital adequacy ratio reaching 10% in the most recent two years or having a capital adequacy ratio reaching 11% for the preceding year; and

(4) the upper limit on the overall position of foreign exchange settlement and sale as verified by Safe is at least US$1 billion (Article 8).

Related legislation: PRC People's Bank of China Law (Revised), Dec 27 2003; PRC Regulations for the Control of Foreign Exchange (2nd Revision), Aug 5 2008, CLP 2008 No.8 p.61; Tentative Provisions for the Administration of Interbank Foreign Exchange Market, Dec 2 1996; and, Circular on Issues Relevant to Accelerating the Development of the Foreign Exchange Market, Aug 8 2005

Repealed legislation: Guidelines for Market Makers of the Interbank Foreign Exchange Market (Tentative), Nov 24 2005