China Foreign Exchange Trading Center Puts New Risk Reserve On The Agenda

On July 6, the circular on strengthening the macro Prudential Management of RMB purchase and sale business conducted by overseas financial institutions entering the inter-bank foreign exchange market was issued. According to the notice, since August 15, 2016, foreign financial institutions entering the inter-bank foreign exchange market will pay the foreign exchange risk reserve on a monthly basis to the flat trading amount of the previous month, with the reserve ratio of 20%, after the positions generated by the overseas financial institutions entering the inter-bank foreign exchange market carry out forward foreign exchange sales business with their customers, Reserve rate Zero.

[full text of notice]

Notice on strengthening the macro Prudential Management of RMB purchase and sale business conducted by overseas financial institutions in the inter-bank foreign exchange market

Members of the interbank foreign exchange market:

In accordance with the relevant requirements of the notice of the general office of the people's Bank of China on strengthening the macro Prudential Management of RMB purchase and sale business conducted by overseas financial institutions in the inter-bank foreign exchange market (YBF [2016] No. 143), in order to improve the macro Prudential Management, the General Office of the people's Bank of China shall strengthen the macro Prudential Management, We will effectively implement the spirit of the notice of the people's Bank of China on strengthening the macro Prudential Management of long-term foreign exchange sales (YF [2015] No. 273) and the Circular of the general office of the people's Bank of China on matters related to the macro Prudential Management of long-term foreign exchange sales (YBF [2015] No. 203), and the foreign exchange market between banks and banks outside the territory financial institution The foreign exchange risk reserve shall be paid when the position arising from carrying out forward foreign exchange selling business with its customers abroad is closed in the interbank foreign exchange market. The foreign exchange risk reserve shall be deposited into a special account opened by the China Foreign Exchange Trading Center (hereinafter referred to as the "trading center"). The relevant matters are hereby notified as follows:

In accordance with the regulations of the State Administration of foreign exchange (No.40 of 2015), foreign exchange institutions of the people's Bank of China (No.40) may enter into the foreign exchange market of the people's Republic of China.

2. From August 15, 2016, it has entered the interbank market foreign exchange market After the positions of overseas financial institutions carrying out forward foreign exchange sales business with their customers overseas are closed in the inter-bank foreign exchange market, the foreign exchange risk reserve shall be paid monthly to the closing amount of the previous month, with the reserve ratio of 20% and the Reserve interest rate of zero.

3. The foreign financial institutions entering the inter-bank foreign exchange market shall submit the deposit base of foreign exchange risk reserve and the amount of foreign exchange risk reserve to the trading center, and transfer the foreign exchange risk reserve (US dollar) to the designated account of the trading center before the 15th day of each month (postponed in case of holidays). The conversion rate between various currencies is calculated according to the "conversion rate of various currencies to us dollar" published by the State Administration of foreign exchange every month. If the conversion rate is not published, it shall be calculated with reference to the conversion rate of various currencies to the US dollar determined by the State Administration of foreign exchange.

The calculation formula of foreign exchange risk reserve of foreign financial institutions entering the inter-bank foreign exchange market is: the deposit amount of foreign exchange risk reserve in the current month = the flat amount of the position generated from the forward sales of foreign exchange with overseas customers in the last month × the foreign exchange risk reserve ratio.

4. The freezing period of foreign exchange risk reserve is one year, and the exchange center will withdraw the funds on the 15th of the month when Beijing time expires (postponed in case of holidays).

5. Foreign financial institutions entering the inter-bank foreign exchange market shall strictly comply with the above requirements. In case of any violation of the regulations, such as delayed reporting of the amount, late delivery of foreign exchange risk reserve, and omission of payment, the trading center will handle the case in accordance with the regulations.

6. Relevant operation procedures and other specific requirements will be notified by the trading center.