Laws of the People's Republic of China

The State Administration of Foreign Exchange

Notice of the State Administration of Foreign Exchange on the Relating Issues of Promoting Spot Inquiry Dealing in Inter-bank Foreign Exchange Market

Hui Fa [2005] No.87

To the branches of the State Administration of Foreign Exchange in all provinces, autonomous regions, municipalities, foreign exchange regulatory departments, designated China-funded foreign exchange banks, China Foreign Exchange Trade Center:

In order to further perfect RMB rate-forming mechanism, develop foreign exchange market, improve liquidity of foreign exchange market and provide diversified dealing modes, the State Administration of Foreign Exchange, in accordance with the spirit of Notice of the People's Bank of China on Relevant Issues concerning Accelerating the Development of Foreign Exchange Market( Yin Fa[2005] No.202), the State Administration of Foreign Exchange decided, from the year of 2006, to promote inquiry dealing mode in spot foreign exchange dealing. Participants in inter-bank market may, on the basis of the original concentrated credit extension, concentrated auction dealing, choose independently the dealing mode of bilateral credit extension, bilateral clearing, and in accordance with foreign exchange floating range of inter-bank market prescribed by the People's Bank of China and the provisions of Rules of RMB Foreign Exchange Spot Dealing in Inter-bank Foreign Exchange Market(see the Appendix) as an official reply of the State Administration of Foreign Exchange to China Foreign Exchange Trade Center, and undertake bilateral inquiry foreign exchange dealing on the basis of inquiry dealing in inter-bank foreign exchange market.

In order to facilitate the prompt balance of counter position by banks after the close of inquiry system, inquiry dealing time from the commencement of the year of 2006 shall be postponed to 17¡Ã30.

China Foreign Exchange Trade Center, after the receipt of this Notice, shall notify members of inter-bank foreign exchange market, and make ready for the maintenance of spot inquiry system in inter-bank foreign exchange market to ensure the steady operation of foreign exchange market.

The branches of foreign exchange bureau, upon receipt of the Notice, shall promptly transfer it to city commercial banks, rural commercial banks, rural cooperative banks, rural credit cooperatives, foreign-funded banks and etc.

As for problems in the process of its implementation, please contact with Balance of Payments Department of the State Administration of Foreign Exchange. Tel: 010£­68402181¡¢68402099.

We now give you the notice.

Appendix: Rules of RMB Foreign Exchange Spot Dealing in Inter-bank Foreign Exchange Market

Promulgated by the State Administration of Foreign Exchange

November 24, 2005 Appendix:

Rules of RMB Foreign Exchange Spot Dealing in Inter-bank Foreign Exchange Market

Chapter I General Principle

Article 1

In order to standardize spot dealing order of RMB foreign exchange in inter-bank market, maintain legitimate rights of members of RMB foreign exchange spot dealing market( herein after referred to as member), the Rules of dealing is hereby formulated( herein after referred to as the Rules) in accordance with Regulations of the People's Republic of China on Foreign Exchange Control, Interim Measures for Administration of Inter-bank Foreign Exchange Market(Yin Fa[1996] No. 423) and Notice of the People's Bank of China on Relevant Issues concerning Accelerating the Development of Foreign Exchange Market( Yin Fa[2005] No.202, herein after referred to as provisions of Notice).

Article 2

RMB foreign exchange spot dealing (herein after referred to as spot dealing) refers to the foreign exchange to RMB dealing delivered by members in conventional foreign currency, sum, and exchange rate in or within the second working day after the transaction date.

Article 3

Inter-bank foreign exchange market undertakes membership administration, and China Foreign Exchange Trade Center (herein after referred to as Trade Center) provides electronic trading system(herein after referred to as trading system) for inter-member spot dealing and other relevant services.

Chapter II Membership

Article 4

Membership in the Rules refers to such banks, non-bank financial institutions or non-financial institutions as have met the relevant condition, won the approval after submission of written application and are entitled to undertake spot dealing within the dealing system provided by the Trade Center.

Article 5

The bank and its branches, established in accordance with the relevant laws and with the qualification for foreign exchange business after the approval by competent authority, are entitled to raise application for membership to the Trade Center.

Article 6

Non-financial institutions and non-bank institutions in conformity to Article 1 of the Notice are entitled to raise application for membership to the Trade Center in accordance with provisions in the Notice.

Article 7

The member herein shall abide by otherwise provisions relating to inter-bank foreign exchange market.

Chapter III Elements of Transaction

Article 8

Inter-bank foreign exchange market is open from Monday to Friday, close on Saturday and Sunday and otherwise legal holiday within the territory of China.

Article 9

The member herein shall authorize the dealer, who has received training from the Trade Center and obtained its certificate of competent, to undertake spot dealing in the name hereof, and shall be responsible for the deeds of the dealer herein.

Article 10

The dealer herein shall abide by the relevant provisions of dealing system, consciously maintain market order. The Trade Center is, as for the dealer who violates the relevant rules, entitled to give oral warning, written notice of criticism, and even such punishment as cancellation of its membership.

Article 11

The member herein shall be equipped with electronic dealing system connected with inter-bank foreign exchange market.

Article 12

Where the member fails to undertake normal dealing or issue sale slip for such reasons as equipment or communication line fault, it may undertake urgent dealing in accordance with Emergency Plan of Inter-bank Foreign Exchange Spot Dealing System.

Article 13

In case of force majeure, the Trade Center, after having reported it to competent authority for record, may declare all or partial trading suspension.

Article 14

The member may undertake auction dealing or inquiry dealing by means of the trading system of the Trade Center.

Chapter IV Auction Dealing

Article 15

Auction dealing is undertaken through independent quotation, match deal. The dealing system shall arrange order in accordance with buy-in offer and selling-out offer and match deal in accordance with the principle of price preference and time preference.

1)

Where the buy-in offer is equal to the selling-out offer, the closing cost shall be the buy-in offer or selling-out offer.

2)

Where the buy-in offer is higher than the selling-out offer, the closing cost shall be the earlier one between the buy-in offer and the selling-out offer.

3)

Where either the buying-in offer or the selling-out offer is the market price, the offer with price shall be the market price.

4)

Where two of them are market price, the last offer with market price shall be the market price hereof.

5)

Where one offer matches part of the sum, the remaining sum shall continue its participation in order arrangement.

Article 16

The dealer shall offer quotation within the prescribed range of price.

Article 17

After the auction dealing has stricken a deal, the sport auction dealing sale slip, settlement list shall be equivalent to deal contract, and lawfully binding.

Article 18

Capital liquidation of auction dealing

1)

Auction dealing undertakes concentrated liquidation. Foreign exchange currency and RMB used for liquidation shall, within the prescribed time limit, handle book-entry delivery.

2)

Liquidation of foreign exchange fund shall be handled via overseas commercial banks, liquidation of RMB fund via "Modern Payment System of China" of the People's Bank of China.

3)

Where the settlement fund fails to enter account book in time, the Trade Center is authorized to raise warming, notice of criticism, till suspension of dealing, and demand the delay part for payment of overdue interest.

Article 19

The auction dealing is open from 9¡Ã30 to 15¡Ã30 in accordance with Beijing time.

Chapter V Inquiry Dealing

Article 20

Currency, sum and exchange interest and etc. in inquiry dealing shall be negotiated and agreed by both parties, with the agreement hereby not in conflict with the provisions in the Notice and other relevant rules.

Article 21

After having reached inquiry agreement, the dealer must record the relating dealing elements into dealing system to issue sale slips.

Article 22

The sale slips confirmed in the process of dealing by the two parities in the dealing system shall be equivalent to deal contract and legally binding, shall not be altered or discharged by the two parties hereto without authorization. The two parities hereto shall, in accordance with the actual necessity, sign additional contract with regard to breach of contract clauses, offset between creditor's rights and liability, force majeure and other particulars to be further clarified.

Article 23

The delivery and settlement in inquiry dealing shall be negotiated and agreed by the two parities hereto, the agreement of the two parties shall not be in conflict with the Notice and the relevant provisions.

Article 24

The inquiry dealing is open from 9¡Ã30£­17¡Ã30 in accordance with Beijing time.

Chapter VI Information Disclosure

Article 25

The Trade Center shall, in accordance with the authorization from responsibility organs, be responsible for the daily statistics of sport dealing, market monitoring and the relevant information disclosure.

Article 26

Where the two parties in the dealing intentionally breached the contract through malicious collaboration in order to reach unlawful objective, they will be exposed through announcement.

Article 27

The members can inquire auction dealing and the relevant information of inquiry dealing through dealing system.

Article 28

The Trade Center may release relevant information to the public through official media authorized by responsibility organs.

Chapter VII Appendix

Article 29

The Trade Center, in accordance with compensation principle, shall provide dealing system and relevant services to the members.

Article 30

The Rules shall be interpreted by the Trade Center.

Article 31

The Rules shall come into effect as of the date of its promulgation.