Laws of the People's Republic of China

CHAPTER I GENERAL PROVISIONS

CHAPTER II TRADING IN SECURITIES

CHAPTER III QUALIFICATIONS OF PRIMARY DEALERS AND VERIFICATIONS OF

THESE QUALIFICATIONS

CHAPTER IV RIGHTS AND OBLIGATIONS OF PRIMARY DEALERS

CHAPTER V ALTERATION AND TERMINATION OF THE QUALIFICATION OF

PRIMARY DEALERS

CHAPTER VI RULES ON PUNISHMENT

CHAPTER VII SUPPLEMENTARY ARTICLES

   Article 1 These Regulations have been formulated with a view to ensuring the smooth development of the open market business, safeguarding the legitimate rights and interests of dealing parties, and promoting the steady development of China's monetary market.

   Article 2 The open market business referred to in these Regulations means the activity of open buying and selling securities conducted by the People's Bank of China in order to attain the objective for its monetary policy.

   Article 3 Primary dealers in the open market business (hereinafter referred to as primary dealers) referred to in these Regulations mean commercial banks, securities companies, and trust and investment companies which have been examined and designated by the People's Bank of China, and which are qualified for doing securities deals directly with the People's Bank of China.

   Article 4 The People's Bank of China shall take charge of examining and approving matters concerning the determination of, change in or cancellation of the qualification of primary dealers.

   Article 5 The Open Market Business Operational Office (hereinafter referred to as the Operational Office) of the People's Bank of China shall take charge of the routine work of the open market business.

   Article 6 The categories of securities for trading refer to policy- oriented financial securities, fund-raising securities of the central bank, national debts and other kinds of securities designated by the People's Bank of China.

   Article 7 The categories of securities for trading shall include purchase, sale and counterpurchase.

   Article 8 In trading securities with the People's Bank of China, primary dealers shall sign relevant agreements with the latter.

   Article 9 There shall be seven different time limits for counterpurchase i.e., 7 days, 14 days, 21 days, 28 days, 2 months, 3 months and 4 months.

   Article 10 Securities trading shall normally be conducted by inviting bids, including bidding in terms of the amount and bidding in terms of interest rates (or price bidding). Specific principles on winning bids shall be formulated by the Operational Office.

   Article 11 The liquidation of funds for securities trading shall be handled in accordance with the procedures for accounting examination and calculation formulated by the relevant departments of the People's Bank of China.

   Article 12 Securities registration, trust and transaction shall all be conducted with the Central National Debt Registration Settlement Co Ltd and shall be handled in accordance with the regulations formulated by the company.

CHAPTER III QUALIFICATIONS OF PRIMARY DEALERS AND VERIFICATIONS OF THESE

   Article 13 Those applying to become primary dealers shall meet the following qualifications:

1. Commercial banks, securities companies and trust and investment companies which have been established as an independent legal person with approval from the People's Bank of China.

2. Abiding by state laws and decrees concerning economic affairs and finance, as well as provisions formulated by the People's Bank of China regarding the management of the ratio of assets to debts.

3. The registered capital of an urban cooperative bank, a securities company and a trust and investment company shall not be less than 200 million yuan (including the amount of Renminbi converted from their foreign exchange capital).

4. The volume of securities trading by a securities company and a trust and investment company shall constitute a considerable market share, have a relatively large agency business and qualified professionals, operate assets of fairly high quality, be capable of making big profits, and have a perfect international managerial mechanism.

5. Having the ability and being willing to perform various obligations as specified by Article 4 of these Regulations; and

6. Other conditions prescribed by the People's Bank of China.

   Article 14 Institutions that have been qualified as "independent primary dealers of national debts of the People's Republic of China" shall enjoy priority in becoming primary dealers.

   Article 15 Any agency that meets the conditions as listed in Article 13 of these Regulations may file an application for becoming a primary dealer to the People's Bank of China, send in an application form for the qualification for primary dealers in the open market business, and submit the following materials:

1. A brief introduction of itself.

2. Business license (duplicate).

3. Duplicates of year-end balance sheets that have been audited by certified public accountant firm.

4. The specific department that will participate in the open market business and the composition of its staff; and

5. Other relevant data whose submission is required by the People's Bank of China.

   Article 16 Any agency that has become a primary dealer following examination and approval shall be issued a "certificate of qualification for primary dealers in the open market business" by the People's Bank of China, with its name being made public.

CHAPTER IV RIGHTS AND OBLIGATIONS OF PRIMARY DEALERS

   Article 17 Primary dealers shall enjoy the following rights:

1. Direct securities trading with the People's Bank of China.

2. Priority in obtaining information on the open market business released by the People's Bank of China, as well as relevant data provided by the Operational Office.

3. Conveniences and services provided by the People's Bank of China and relevant securities registration and settlement departments in such areas as the opening of bank accounts, fund liquidation, securities trust and settlement, and technical support.

4. Taking part in activities including joint meetings of primary dealers held regularly by the People's Bank of China, exchanges, symposiums and training of staff.

5. Participation in discussion of rules and systems of the People's Bank of China concerning the open market business.

6. Mutual trading of policy financial bonds and fund accommodation funds of the central bank in line with relevant stipulations of the People's Bank of China.

7. Other rights granted by law.

   Article 18 Primary dealers shall have the following obligations:

1. Active participation in securities trading. Those that do not participate in trading or bidding or offer quotations in a trading day as stipulated by the Operational Office shall promptly explain its reasons and relevant background.

2. Fulfilment of the trading tasks assigned by the People's Bank of China in times of special needs for macro-economic controls so as to timely pass around intensions of monetary policies. The People's Bank of China shall give due consideration to the interests of primary dealers when assigning mandatory trading tasks.

3. Conduction of honest trading with the People's Bank of China and offering of reasonable market quotations.

4. Supply of information concerning the fund position, the possession of securities and trading on the secondary securities market, as well as other relevant data.

5. Regular supply of market information and market analytical data to the Operational Office, and timely report of major incidents. And

6. Strict performance of other obligations as specified in relevant provisions on the management of the open market business.

CHAPTER V ALTERATION AND TERMINATION OF THE QUALIFICATION OF PRIMARY

   Article 19 The People's Bank of China shall make annual examination of the qualification of primary dealers. Such examination shall mainly cover the following aspects:

1. Participation in the open market business.

2. Performance in the securities business in a year.

3. Changes in assets and debts as well as losses and profits in a year.

4. Observation of stipulations in these Regulations and other regulations on the management of the open market business; and

5. Other aspects that call for examination.

The People's Bank of China shall announce the result of these examinations.

   Article 20 Primary dealers that change their names or merge with others shall go through qualification alteration procedures with the People's Bank of China.

   Article 21 Those that voluntarily give up their qualification for primary dealers shall go through corresponding procedures with the People's Bank of China and shall not, within two years, apply to become primary dealers again.

   Article 22 Those that fail to fulfil the trading tasks assigned by the People's Bank of China shall have their qualification as primary dealers suspended for one year.

   Article 23 Those that involve in serious cases of collaborate manipulating of prices in securities trading shall have their qualifications as primary dealers revoked by the the People's Bank of China and banned from applying for becoming primary dealers once again for two years.

   Article 24 Those that commit other acts in violation of laws and regulations shall be dealt with in accordance with relevant laws and regulations. Moreover, the People's Bank of China shall, depending on the seriousness of their cases, suspend their qualification for primary dealers for one year or revoke their qualification for primary dealers.

   Article 25 The People's Bank of China shall publish the names of those primary dealers whose qualifications have been suspended or cancelled.

   Article 26 Those whose qualification for primary dealers have been suspended or revoked shall cease to enjoy various rights granted by relevant provisions on the open market business, but shall continue to perform the obligations that they have not performed.

   Article 27 The qualifications and corresponding rights of those primary dealers whose business licenses have been revoked by departments in charge of them shall terminate automatically.

   Article 28 Those failing to submitted materials to higher authorities in accordance with provisions or providing fraudulent materials shall be given a warning.

   Article 29 Those that fail to strike deals or offer quotations for three successive trading days in a year without reporting to higher authorities shall be criticized in the form of a circular.

   Article 30 Those that violate other provisions concerning the open market business shall be dealt with in accordance with relevant provisions. Moreover, the People's Bank of China shall, depending on the seriousness of their cases, impose upon them fines ranging from 5,000 yuan to 30,000 yuan.

CHAPTER VII SUPPLEMENTARY ARTICLES

   Article 31 The People's Bank of China shall interpret and revise these Regulations.

   Article 32 These Regulations shall take force on the date of promulgation.