Laws of the People's Republic of China

State Administration of Foreign Exchange

Circular of SAFE on Distributing the Implementation Rules on Application of Non-financial Companies and Non-bank Financial Institutions for Membership Qualification for Inter-bank Spot Forex Market (For Trial Implementation)

Hui Fa No.94 [2005]

The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange in all provinces, autonomous regions, and municipalities directly under the Central Government, and the municipal branches of the State Administration of Foreign Exchange of Shenzhen, Dalian, Qingdao, Xiamen and Ningbo; and China Foreign Exchange Trade Center,

With a view to implementing the Notice of the People's Bank of China on Relevant Issues concerning Speeding up the Development of the Foreign Exchange Market (No.202 [2005] of the People's Bank of China), increasing the number of participants in the inter-bank forex market, we hereby print and distribute to you the Detailed Implementation Rules on the Application of Non-financial Companies and Non-bank Financial Institutions for the Membership Qualification for the Inter-bank Spot Forex Market (For Trial Implementation).

After receiving this Notice, all the branches and foreign exchange administrative departments of the State Administration of Foreign Exchange shall forward it to all the branches within their jurisdictions, and shall, in light of the reality of their own jurisdictions, strengthen publicity and guidance to the non-financial companies and non-bank financial institutions for their application for members of inter-bank spot forex market.

In case any problem is encountered in the implementation, please contact the Department of International Balance of Payment of the State Administration of Foreign Exchange. The contact telephone is: 010-68402099, 68519072.

Annex: Detailed Implementation Rules on the Application of Non-financial Companies and Non-bank Financial Institutions for the Membership Qualification for the Inter-bank Spot Forex Market (For Trial Implementation)

Annex:Detailed Implementation Rules on the Application of Non-financial Companies and Non-bank Financial Institutions for the Membership Qualification for the Inter-bank Spot Forex Market (For Trial Implementation)

I.

Application Qualification

1.

A non-financial company and non-bank financial institution shall, when applying for the membership qualification for the inter-bank spot forex market, comply with the conditions as set forth in items (1) and (2) of Article 1 of the Notice of the People's Bank of China on Relevant Issues concerning Speeding up the Development of the Foreign Exchange Market (No.202 [2005] of the People's Bank of China, hereinafter referred to as the Notice).

2.

A non-financial group company without a subordinate finance company, which needs to handle the market transactions of the capital of its internal members in a centralized manner, shall manage the foreign exchange capital within the group in a centralized way. Its total trade volume and the scale of trans-boundary foreign exchange income and expense under the current items shall be calculated by gathering those of all the domestic members of the group, and the legal person at the level of the group company shall apply for the membership qualification for the inter-bank spot forex market uniformly. For a non-financial group company with a subordinate finance company, the membership qualification shall be applied for by the finance company, and the standard and application procedures for entering into the market shall be treated as those of the non-finance institutions. The market transactions of the capital of the members in the group shall be handled by the finance company in a centralized manner, and the group company shall not file repeated applications for the membership qualification for the inter-bank spot forex market.

3.

For a non-financial institution group which needs to handle the market transactions of the capital of its members in a centralized manner, its registered capital shall be calculated by gathering the capital of all its domestic members, and the legal person at the level of the group or its authorized institution shall apply for the membership qualification for the inter-bank spot forex market uniformly. If a non-bank financial institution does not apply for the membership qualification for the spot forex market uniformly, it may apply for the membership qualification independently, but shall not handle market transactions for other members of the group.

II.

Procedures for Application

When applying for the membership qualification for the inter-bank spot forex market, a non-financial company or non-bank financial institution shall file an application to the China Foreign Exchange Trade Center in advance, and the China Foreign Exchange Trade Center shall report to the State Administration of Foreign Exchange (hereinafter referred to as the SAFE) for archival filing after the application has passed its preliminary examination. Under special circumstances, a non-financial company or non-bank financial institution may file an application directly to the SAFE.

The SAFE shall, after receiving the application materials of the China Foreign Exchange Trade Center for archival filing, make examination on the archival filing materials within 15 workdays, and issue a Notice of Archival Filing on the Membership Qualification for the Inter-Bank Spot Forex Market (hereinafter referred to as the Notice). The Notice shall be made in quadruplicate, one shall be sent to the applicant, a second one shall be submitted to the China Foreign Exchange Trade Center, a third one to the branch or department of foreign exchange administration at the locality of the applicant, and the fourth one shall be put on archives for future reference. If an application is not granted archival filing due to noncompliance, the reasons shall be noted in the Notice at the same time.

III.

Application Materials

1.

When a non-financial company applies for the membership qualification for the inter-bank spot forex market, it shall submit the following application materials:

(1)

An application report, specifying the purpose of application, staffing, and the transaction system, and other information.

(2)

A report on the income and expenses of trans-boundary foreign exchange under the current items, and the volume of import and export of trade in goods in the previous year, and other relevant information, including the ways of trade, main products traded, and the major import and export market, and etc..

(3)

The information on the foreign exchange incomes and expenses, as well as the settlement and sale of foreign exchange in the previous year, including the monthly and annual foreign exchange incomes and expenses as well as the settlement and sale of foreign exchange.

(4)

The proof of the department of foreign exchange administration at the locality of the corporate non-financial enterprise (or group company) or its subordinate finance company on its compliance to foreign exchange control within the two years before the application is filed.

(5)

The internal management system concerning the participation of transactions at inter-bank spot forex market, including the operating rules for the transactions, risk management provisions, and administration of the right limit of business, and etc..

(6)

The system of centralized management on the internal foreign exchange capital of the group company (for the group company with no need to handle the market transaction of its members' capital, such materials need not be submitted). And

(7)

Other relevant materials requiring provisions by the SAFE and the China Foreign Exchange Trade Center.

2.

When a non-bank financial institution applies for the membership qualification for the inter-bank spot forex market, it shall submit the following application materials:

(1)

An application report, specifying the purpose of application, staffing, and equipment of the transaction system, and other information.

(2)

Photocopy of the document of approval for the qualification for the foreign exchange business operations.

(3)

Photocopy of the document of approval for the qualification for the operation of foreign exchange settlement and sale.

(4)

Financial statements of the non-bank financial institution in the previous year, which has been audited by an accountant firm.

(5)

The internal management system on the participation of transactions in the inter-bank spot forex market, including operating rules for transactions, risk management provisions, and provisions on the right limit of business, and etc.. And

(6)

Other relevant materials as required to provide by the SAFE and the China Foreign Exchange Trade Center.

IV.

Transaction Management

1.

A non-financial company that has obtained the membership qualification for the inter-bank spot forex market (hereinafter referred to as the non-financial company member) shall follow the principle of actual need in its spot transaction in the inter-bank forex market, and shall not enter into the market for any transaction that shall be subject to approval by the SAFE and its branches (hereinafter referred to as the foreign exchange administrations) as prescribed by the applicable laws on foreign exchange control until it gets the approval as required; for any other transactions, it may directly enter into the market for transaction.

2.

A non-bank financial institution that has obtained the membership qualification for the inter-bank spot forex market (hereinafter referred to as the non-bank financial institution member) shall, when undertaking spot transaction in inter-bank forex market, not enter into the market for any transaction that shall be subject to approval by the SAFE as prescribed by the applicable foreign exchange control law until it gets approval as required; for any other transactions, and it may directly enter into the market for transactions.

3.

A non-financial company member and a non-bank financial institution member shall, when handling the business of settlement and sale of internal foreign exchange, examine the relevant proofs according to the relevant provisions, and make business accounting on the relevant business through special accounting items of exchange. All the transactions certificates, documents of approval for settlement and sale of foreign exchange, and commercial documents shall be preserved for five years for future reference.

4.

A non-financial company member and a non-bank financial institution member that implement centralized management on the internal foreign exchange capital of the group shall, when handling the business of internal foreign exchange settlement and sale of its group, may determine by itself the foreign exchange rate applicable to its internal members, but shall abide by the relevant administrative provisions of the designated forex banks on foreign exchange quotations.

5.

After a non-financial company member and a non-bank financial institution member have made transactions at inter-bank spot forex market, they shall go through the formalities for transfer of domestic foreign exchange at a bank upon the strength of the Clearing List of the Members of China Foreign Exchange Trade Center when they clear their foreign exchange capital. And

6.

A non-financial company member and a non-bank financial institution member shall, when making transactions in the inter-bank spot forex market, apart from abiding by the provisions of the present Detailed Implementation Rules, also abide by other relevant provisions on inter-bank spot forex market.

V.

Submission of Statistical Information

1.

A non-financial company member and a non-bank financial institution member shall, in accordance with the Notice of the State Administration of Foreign Exchange on Doing a Good Job in Getting Ready for Amending Statistical Statements for Settlement and Sale of Foreign Exchange by Banks (No.71 [2005] of the State Administration of Foreign Exchange) and other provisions on the statistics of foreign exchange settlement and sale, and by differentiating the specific nature of foreign exchange settlement and sale for transactions, submit the original data of foreign exchange settlement and sale for their transactions in the inter-bank spot forex market to their capital clearance banks (hereinafter referred to as the clearing banks) within China on quarterly and monthly basis. The clearing banks shall include the transaction data into the statistical statements of their own banks for settlement and sale of foreign exchange, and submit them in accordance with the provisions of the SAFE on the statistics of settlement and sale of foreign exchange by banks. A non-financial company member and a non-bank financial institution member shall negotiate with their clearing banks on the time and ways for submission of the transaction data, so as to ensure that the clearing banks fulfill their obligations of making statistics on foreign exchange settlement and sale in an complete, accurate, and timely manner. The clearing banks shall, when making statistics on the comprehensive positions of foreign exchange settlement and sale, not incorporate the transaction data of a non-financial company member and a non-bank financial institution member in the inter-bank spot forex market into the items of ¡°settlement of foreign exchange¡± and ¡°sale of foreign exchange¡± in the column of ¡°settlement and sale of foreign exchange to clients on the current day¡± of the daily statement for comprehensive positions of settlement and sale of foreign exchange of the clearing banks.

2.

A non-financial company member and a non-bank financial institution member shall, within 10 workdays after each quarter, submit to the branch or department of foreign exchange administration at its locality the information on the trans-boundary foreign exchange incomes, trans-boundary foreign exchange expenses, and handle the settlement and purchase of foreign exchange over the counter of a bank, and the settlement and purchase of foreign exchange at the inter-bank spot forex market of this quarter. The said members shall submit the financial statements of the previous year that have been audited by an accountant firm to the branch or department of foreign exchange administration at their localities within 4 months after the year.

VI.

Penalties

1.

In case any non-financial company member or a non-bank financial institution member violates the provisions of Article 4 of the present Detailed Implementation Rules, the SAFE shall give it a punishment in accordance with the provisions of the Regulation on Foreign Exchange Control of the People's Republic of China; if the circumstance is serious, its membership qualification for the inter-bank spot forex market shall be cancelled.

2.

In case a non-financial company member or a non-bank financial institution member violates the provisions of item (1) of Article 5 of the present Detailed Implementation Rules, and fails to submit the statements as required in a timely manner or submits false data for up to four times or more accumulatively within 3 months, the SAFE shall give it a punishment in accordance with Article 49 of the Regulation on Foreign Exchange Control of the People's Republic of China; if the circumstance is serious, its membership qualification for the inter-bank spot forex market shall be suspended or cancelled; if a non-financial company member or a non-bank financial institution member violates the provisions of item (2) of Article 5 of the present Detailed Implementation Rules, and fails to submitting the statements as required in a timely manner or submits false data for two or more times accumulatively within a year, the SAFE shall give it a punishment in accordance with Article 49 of the Regulation on Foreign Exchange Control of the People's Republic of China; if the circumstance is serious, its membership qualification for the inter-bank spot forex market shall be suspended or cancelled.

3.

In case a non-financial company member or a non-bank financial institution member violates any other provisions of the present Detailed Implementation Rules, settles or sells its foreign exchange repeatedly or handles its foreign exchange settlement and sale by using false commercial documents and certificates, the SAFE shall give it a punishment in accordance with Article 40 of the Regulation on Foreign Exchange Control of the People's Republic of China; if the circumstance is serious, its membership qualification for the inter-bank spot forex marke shall be suspended or cancelled t.

VII.

Others

The present Detailed Implementation Rules shall be implemented as of the date when it is printed and distributed.