Laws of the People's Republic of China

[2007] No.1

With a view to perfecting the system of national inter-bank bond market makers, improving market liquidity, enhancing market price discovery and promoting the development of China's bond market, the People's Bank of China formulated the Provisions for Administrating National Inter-bank Bond Market Makers. They are hereby promulgated. The People's Bank of China

January 9, 2007

Provisions for Administering National Inter-bank Bond Market Makers

Article 1

In accordance with the Law of the People's Republic of China on the People's Bank of China, the present Provisions are enacted with a view to regulating the market making business operated by national inter-bank market makers, improving market liquidity, perfecting the price discovery mechanism and promoting the rapid development of China's bond market.

Article 2

The term "market maker" as mentioned in the present Provisions means the financial institutions that conduct the market making business in the inter-bank market upon the approval of the People's Bank of China, enjoy the provisioned rights and assume the corresponding obligations.

Market making business means an act that a market maker, in accordance with the relevant requirements, consecutively makes bilateral quotations for the purchase and sale of the existing market making bonds in the inter-bank market, and then transacts with other market participants on the basis of its quotations.

Article 3

To be a market maker, a financial institution set up within the territory of the People's Republic of China in accordance with law shall meet the conditions as follows:

(1)

its registered capital or net capital shall be 1.2 billion Yuan or more;

(2)

it shall be active in the market and its trading amount of existing bonds for the previous year shall rank top 80 when it lodges the application;

(3)

it shall have tried to conduct the market making business in the inter-bank market and have possessed necessary experience and ability before it lodges an application;

(4)

it shall own perfect interior control system, operation instruction and sound mechanism of interior risk control and incentive and examination mechanism;

(5)

it shall own a considerably strong ability to study and analyze the bond market;

(6)

there are five or more employees qualified for conducting bond business in the business department concerned, the posts are reasonably set and the duties are well clarified;

(7)

it shall have no record of grave violation of any law or regulation in the recent two years prior to its application; and

(8)

other conditions as specified by the People's Bank of China.

Article 4

To be a market maker, a financial institution shall present the following materials to the People's Bank of China:

(1)

an application form;

(2)

its Business License (copy of the duplicate);

(3)

its Finance License (copy of the duplicate);

(4)

its interior control system and operational instruction for the market making business;

(5)

a brief introduction on the related business department (inclusive of personnel structure, post establishment, duty division and so on.);

(6)

a report on its activities in the inter-bank market in the recent two year prior to its application (inclusive of the summary of its try in market making business);

(7)

the balance sheets, profit appropriation statements and cash flow statements (copies) of the recent two years before it submits the application which have been audited by certified public accountants,;

(8)

a written statement on the fact that it has no record of grave violation of any law or regulation in the recent two years prior to its application; and

(9)

other materials as requested by the People's Bank of China.

A financial institution shall hold responsibility for the authenticity, accuracy and integrity of the materials it presents and there shall be no false record, misleading statement or major omission.

Article 5

After receiving the application of a financial institution, the People's Bank of China shall carry out examination and approval according to the procedure as specified in the Measures for Implementing the Administrative Licensing by the People's Bank of China (Decree No.3, 2004 of the People's Bank of China).

Article 6

A market maker may be entitled to:

(1)

obtain the convenience to purchase bonds in the primary market;

(2)

have priority to become a member of the underwriting syndicates for the government bonds or the bonds of governmental development financial institutions, or a primary dealer for open market business;

(3)

have the advantage for making bond debit and credit;

(4)

enjoy the policy support in terms of making product innovation in the inter-bank market;

(5)

as regards the transaction of existing bonds or bond debit and credit conducted through the market making business, to enjoy preferences in commission charges for both transaction and settlement; and

(6)

have the advantage for obtaining such information as the real time quotation data and transaction data provided by the National Inter-bank Funding Center (hereinafter referred to as Funding Center).

Article 7

A market maker shall fulfill the obligations as follows:

(1)

the total number of varieties of market making bonds it has decided shall be no less than six and the varieties finally decided shall cover the following three: namely, government bonds, bonds of governmental development financial institutions and non-governmental debenture bonds;

(2)

the compensation terms of market making bonds shall include at least 4 of the 5 terms namely 0-1 year, 1-3 years, 3-5 years, 5-7 years and more than 7 years;

(3)

once a market maker decides the varieties of market making bonds, it mustn't alter them on the current day, and shall make consecutive bilateral quotations on the selected varieties, and the time gap between bilateral quotations shall not exceed 30 minutes; and

(4)

the minimum volume of quotation of a single transaction shall be the par value of RMB 1, 000, 000 Yuan.

In case any market maker is unable to perform any obligation as mentioned above by virtue of unusual circumstance, it shall report to the People's Bank of China in a written form and explain the reasons in a timely manner.

Article 8

A market maker shall, on the basis of the actual price, make bilateral quotations, whose price gap shall fall within the reasonable scope of the market.

Article 9

A market maker shall, within 10 workdays upon the end of each season, present the People's Bank of China a written analysis of the bond market and its bond transaction and market making situation of this season.

Article 10

A market maker may not manipulate the market. If it does so and causes any loss to the investors, it shall undertake the liability for compensation in accordance with law.

Article 11

The self-discipline organization of the inter-bank market shall, through information platforms such as the website of the People's Bank of China every half a year, publicize the following related market-making circumstances of market makers: the number of the varieties of market-making bonds, the total amount of market-making quotations and information about the market-making transactions, etc.

Article 12

The self-discipline organization of the inter-bank market shall evaluate the market-making business of the market makers on a regularly basis, and the evaluation results shall be circularized through such information platform as the website of the People's Bank of China.

The People's Bank of China shall adjust market makers in accordance with the evaluation results.

Article 13

In case a market maker engages in market-making business or a non-market maker tries to engage in market-making business, it shall conduct through the trading system of the Funding Center, which shall consummate its trading system to provide technical support for the conduction of market-making business.

Article 14

The Funding Center shall set down operational instruction for the market-making business according to the present Provisions, which shall be implemented after being reported it to the People's Bank of China for archival filling.

The Funding Center and China Government Securities Depository Trust & Clearing Co., Ltd. shall set down the detailed rules on commission charge preference for the transactions of existing bonds and transactions of bond debit and credit as conducted by market makers through market making business, which shall be implemented after being reported to the People's Bank of China for archival filling.

Article 15

The market making business of market makers shall be subject to the examination and supervision of the People's Bank of China.

Article 16

In case any market maker or any other institution violates any provision of the present Provisions, the People's Bank of China shall punish it according to the provisions of Article 46 in the Law of the People's Republic of China on the People's Bank of China.

Article 17

The People's Bank of China shall be responsible for the interpretation of the present Provisions.

Article 18

The present Provisions shall go into effect as of February 1, 2007. The Circular of the People's Bank of China Concerning Matters on Regulating and Supporting the Bilateral Quotation Business in the Inter-bank Bond Market ([2001] No.75) and the Circular of the Monetary Policy Department of the People's Bank of China Concerning the Adjustment of the Maximum Price Gap and Minimum Amount of Quotations made by Bilateral Quotation Makers (Yin Huo Zheng [2002] No.43) shall be concurrently repealed.