Laws of the People's Republic of China

Circular concerning the Addition of the Open Market Operations Primary Dealers and the Establishment of the Mechanism concerning Appraising and Adjusting the Primary Dealers in 2004

[2004] No 2

Each open market operations primary dealer and national inter-bank bond market member :

The Addition of the Open Market Operations Primary Dealers and the Establishment of the Mechanism concerning Appraising and Adjusting the Primary Dealers in 2004are hereby notified as follows:

1.

Expanding the range of the open market operations primary dealers

Since 2004, some securities companies, insurance companies and rural credit cooperatives unions are added into the list of the open market operations primary dealers by People's Bank of China in addition to the commercial banks. Simultaneously, People's Bank of China chooses the open market operations primary dealers of different types of institutions to implement transactions subject to the different operation varieties of open market operations. All the open market operations primary dealers, including the commercial banks, securities companies, insurance companies and rural credit cooperatives unions, may take part in the People's Bank of China's operation of the issue of central bank bills; the deposit financial institutions of the open market operations primary dealers, namely the commercial banks and rural credit cooperatives unions, may take part in the operation of repurchase; priority shall be given to the bond market-makers among open market operations primary dealers as approved by the People's Bank of China in implementing cash bond operation, and the People's Bank of China may decide to implement the operation with all the open market operations primary dealers in accordance with the market situation and the operation requirements .

2.

Adding open market operations primary dealers of 2004

According to the bonds underwriting situation of the primary bond market, the transaction situation of the secondary bond market, assets scale, level of management and financial condition of the financial institutions, after considering the local elements, the People's Bank of China decided to add two securities companies, namely Guotai Junan Securities Co., Ltd.. and CITIC Securities Co., Ltd.; four insurance companies, namely China Life Insurance Co., Ltd., China Ping An Life Insurance Co., Ltd., Huatai Property Insurance Co., Ltd. and Taikang Life Insurance Co.,Ltd.; two rural credit cooperatives unions, namely Rural Credit Cooperatives Union of Beijing and Rural Credit Cooperatives Union of Shanghai; and one commercial bank Baotou Commercial Bank, totally nine institutions in all as the primary dealers of open market operations. There are altogether 52 open market operations primary institutions in all in 2004. See Appendix 1 for the detailed name list.

3.

Establishing the mechanism on appraising and adjusting the open market operations primary dealers

The People's Bank of China establishes the mechanism concerning annually appraising and adjusting the open market operations primary dealers since 2004. The specific content is as follows:

(1)

Making evaluation index system. The People's Bank of China makes the evaluation index system towards the national inter-bank bond market members (hereinafter referred to as market members), the main content of the system contains the situation concerning taking part in open market operations, underwriting situation of the primary bond market, trading situation of the secondary bond market and the implementation and conduction of monetary policies, etc. The specific evaluation index system can be found in Appendix 2.

(2)

Setting the index weight coefficient, scoring standards and the calculating value. The People's Bank of China determines the index weight coefficient, scoring standards and calculates the score value of major market members through comprehensive consideration of all kinds of elements.

(3)

Determining the open market operations primary dealers subject to the rules. Since 2004, the number of open market operations primary dealers shall be maintained at 52, among which, the proportions of commercial banks, insurance companies, insurance companies and rural credit cooperatives unions shall be determined subject to the trading situation and the monetary regulation requirements of the previous year. The People's Bank of China calculates the score value subject to the evaluation index system, weight coefficient and scoring standards, evaluates and ranks the above-mentioned four categories of institutions among the major market members, those ranking high should be put on the planned list of open market operations primary dealers. The People's Bank of China should determine and publicize the list of the open market operations primary dealers after soliciting the opinions of the related supervising departments on whether a dealer observes the requirements of the related supervising departments and on its business performance.

Furthermore, as for an institution that fails to perform the related obligations in open market operations, the People's Bank of China may suspend the transactions with this institution in accordance with the related provisions.

By the end of 2004£¬in accordance with the above-mentioned principles and procedures, the People's Bank of China will choose 42 commercial banks, 4 securities companies, 4 insurance companies and 2rural credit cooperative unions, a altogether 52institutions in all, as the open market operations primary dealers of the year 2005.

Appendix 1: Name List of the Open Market Operations Primary Dealers 2004

Appendix 2: Indices for Evaluating the Open Market Operations Primary Dealers

The Operating Office of the Open Market Operations of the People's Bank of China

February 25, 2004

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Appendix 1:

Name List of the Primary Dealers of Open Market Operations 2004

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Appendix 2:

Indices for Evaluating the Primary Dealers of Open Market Operations

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