Laws of the People's Republic of China

The People's Bank of China

Interim Measures for the Administration of the Pledge Business of Small- sum Payment System

Yin Ban Fa [2006] No. 24

February 5, 2006

Article 1

These Measures are formulated in accordance with the Law of the People's Republic of China on the People's Bank of China and other relevant laws and regulations for the purpose of regulating the pledge business of the small-sum payment system, preventing from and dissolving the payment risks and safeguarding the operation of the small-sum payment system in the efficient, safe and stable way..

Article 2

The following terms used in these Measures shall have the meaning as follows :

(1)

The "pledge business of the small-sum payment system" refers to such an act whereby a member bank pledges the bonds to the People's Bank of China (hereinafter referred to as PBC) through the system of pledge business of the small- sum payment system to acquire the pledge quota, and then distribute the pledge quota to itself and its branches as the net marginal debit and to use it as the guarantee for the small-sum netting capital liquidation.

(2)

The "member banks" refers to the legal person institutions of commercial banks and their authorized branches that are established within the territory of the People's Republic of China according to law and engaged in the pledge business of the small-sum payment system upon approval of the PBC.

(3)

The "branches of member banks" refers to the branches of commercial banks that act as the direct participants in the payment system but do not directly handle the pledge business of the small- sum payment system.

(4)

The "China National Advanced Payment System" (hereinafter referred to as the Payment System) refers to the application system that is developed, constructed and operated by the PBC and mainly handles all kinds of payment businesses and capital settlements as well as the trading fund settlement of the money market between different places or within the same city of all the banks , and that is composed of the large-sum payment system and the small-sum payment system.

(5)

The "Central Comprehensive Bond Business System" (hereinafter referred to as the Bond System) refers to the application system that is operated by China Government Securities Depository Trust & Clearing Co. Ltd. (hereinafter referred to as CGSDTC) for providing the participants in the bond market with the services on issuing, registering, entrusting and liquidating of bonds and repaying the principal and interests on behalf and other services.

(6)

The "system of pledge business of the small- sum payment system" (hereinafter referred to as the system of pledge business) refers to the application system that is supported by the Payment System and the Bond System and is used to realize the impawning , discharge of impawning and replacement of pledges as well as the distribution and reclamation of pledge quotas.

(7)

The "alternative pledges" refers to the bonds or other securities that are appointed by the PBC and are trusted in the CGSDTC) by the member banks for conducting the pledge business of the small- sum payment system.

(8)

The "pledge quota" refers to the guarantee quota of small-sum netting capital liquidation obtained by a member bank through conducting the pledge registration of a certain amount of alternative pledges in the Bond System.

(9)

The "rate of bond pledge" refers to the proportion of the pledge quota for a single bond to the value of the bond, and it is expressed as a percentage, of which, the value of the bond shall be temporarily counted according to the price of issuance thereof.

(10)

The "minimum quota of bond pledge" refers to the minimum par value during the process of handling the pledge business for a single bond.

(11)

The "shortest term for payment of the pledges" refers to the shortest term for the compensation of the bonds that are used for the pledge business.

Article 3

The PBC shall determine the member banks according to the qualification conditions of financial institutions. A member bank shall meet the conditions as follows:

(1)

being the legal person institution of a commercial bank, and any of its branches to handle the pledge business of the small-sum payment system shall be authorized by its legal person;

(2)

being a Grade A or B settlement member that has opened a bond account at the CGSDTC;

(3)

having no bad record in the inter-bank market in the latest three years;

(4)

other conditions required by the PBC.

Article 4

Where a member bank is the legal person institution of a nationally commercial bank, its application for handling the pledge business of the small- sum payment system shall be accepted by the head office of the PBC; and for any other member bank to apply for handling the pledge business of the small- sum payment system, an application shall be submitted to the branch or business management department of the PBC at the local province (autonomous region or municipality directly under the Central Government) or the central sub-branch of the capital city of province, and the application shall be subject to the preliminary examination by the branch (sub-branch) of the PBC, and then be reported to the head office of the PBC for acceptance.

Article 5

To apply for handling the pledge business of the small- sum payment system to the PBC, a member bank shall submit the materials as follows:

(1)

an application form for handling the pledge business of the small- sum payment system;

(2)

a photocopy of the license for financial businesses and the account opening confirmation letter issued by the CGSDTC and

(3)

other relevant materials required to be submitted by the PBC.

In case a member bank is a branch as authorized by a commercial bank, it also needs, except the materials mentioned above, to provide a letter of attorney issued by the legal person institution to the PBC.

Article 6

A financial institution shall not provide false information to the PBC when it applies for becoming a member bank.

Article 7

For handling the pledge business of the small- sum payment system, a member bank shall conclude a main agreement with the PBC concerning the pledge business of the small-sum payment system.

Article 8

The CGSDTC shall handle the pledge business of the small-sum payment system for the member banks through the system of pledge business upon the authorization of PBC.

Article 9

When a member bank fails to timely complete the small-sum netting capital liquidation or has credit risks, its pledge quota shall immediately be used for guaranteeing the creditor's rights formed in payment system by PBC for it.

Article 10

Where a member bank fails to discharge the state of bond pledge for the pledged bonds before the expiration of the day for bond transfer, the CGSDTC shall deposit the capital converted from the bonds that are not discharged from pledge after the expiration of the time limit, and timely report it to the PBC.

Article 11

If the capital converted from the bonds is deposited by the CGSDTC, a member bank may file an application for discharging the deposit of the converted capital to the PBC, after the PBC approved upon the examination, notify the CGSDTC to remit the deposited capital converted from the bonds to the member bank provided that the relevant business restriction conditions are satisfied, and report the handling circumstance to the PBC.

Article 12

When a member bank has credit risks, the PBC may entrust the CGSDTC to handle the pledge so as to liquidate the small-sum netting capital.

Article 13

The pledge quota that a member bank obtains during the process of handling the pledge business of the small- sum payment system shall be confirmed by the financial data recorded down in the Bond System.

Article 14

The pledge business of the small-sum payment system shall be composed of the pledge management business and the pledge quota management business.

Article 15

The "pledge management business" refers to the increase, decrease and replacement of pledges handled through the system of pledge business by the member banks.

The "increase of pledges" means that the alternative pledges are impawned to the PBC through the system of pledge business by a member bank so as to obtain the pledge quota to satisfy its own and its branches' requirements for handling the small-sum payment business in the payment system.

The "decrease by adjustment of pledges" means that a member bank discharges the pledged bonds and correspondingly reduces the pledge quota through the system of pledge business.

The "replacement of pledges" means that a member bank discharges the pledged bonds, simultaneously impawns new alternative pledges and correspondingly adjusts the pledge quota through the system of pledge business.

Article 16

The "pledge quota management business" refers to the distribution and reclamation of pledge quotas handled by the member banks for themselves and their respective subordinate branches through the system of pledge business.

The "distribution of pledge quotas" means that a member bank distributes the partly or totally pledge quotas that are not yet distributed to itself and its branches for use through the system of pledge business, and correspondingly increase the net debit quota of all the institutions.

The "reclamation of pledge quotas" means that a member bank reclaims the distributed and used pledge quotas and correspondingly reduces the net debit quota of all the institutions through the system of pledge business.

Article 17

No branch of any member bank may directly handle the pledge business of the small-sum payment system, and its pledge quota shall be distributed by the member bank at higher level..

Article 18

The PBC shall be responsible for determining the alternative pledge varieties, the rate of pledge bonds, the minimum quota of bond pledge, the shortest period for payment of the pledges and other business indices and regularly publish them, of which, the pledge rate of any kind of bonds shall not be more than 90%.

Article 19

All the entities involved in the system of pledge business shall strengthen the mutual coordination and cooperation, and establish an emergency handling scheme.

Article 20

A member bank shall seriously maintain and guarantee the normal operation on the client-end of the system of pledge business.

Article 21

The PBC shall be responsible for maintaining the Payment System for the pledge business of the small-sum payment system, and the CGSDTC shall be responsible for maintaining the Bond System for the pledge business of the small-sum payment system, and both parties shall guarantee the normal operation of the relevant systems, and shall not provide convenience for the member banks to commit illegal acts.

Article 22

If a member bank violates Article 20 of these Measures or the PBC or the CGSDTC violates Article 21 , and which delays or interrupts the impawn, discharge or replacement of pledges or the distribution or withdrawal of pledge quotas and causes losses to the relevant parties, it shall assume the corresponding liabilities and compensate for the losses.

Article 23

In case the force majeure, power supply obstacle, communications transmission obstacle or any other unforeseeable or uncontrolled accident with a reasonable scope makes the system of pledge business unable to operate normally, or delays or interrupts the impawn, discharge or replacement of pledges or the distribution or withdrawal of pledge quotas and causes losses to the relevant parties, the compensation liability of the parties involved shall be partly or totally exempted according to the degree of influences of the force majeure or accident, however, the relevant parties shall be obliged to timely remove the obstacles and take remedial measures.

Article 24

The CGSDTC may, in accordance with these Measures and the relevant provisions on the business system, formulate the Operating Rules for the Pledge Business of the Small- sum Payment System, and implement them after reporting them to the PBC for archival filing.

Article 25

The service on pledge business of the small-sum payment system provided by CGSDTC to the member banks shall be paid , and the specific charging standard shall be implemented after being reported to the PBC for archival filing.

Article 26

The power to interpret these Measures shall be remained with the PBC.

Article 27

These Measures shall be implemented as of February 20, 2006.