Trading Rules for RMB/FX Option Transactions in the National Interbank Foreign Exchange Market 1

Transcription

1 Trading Rules for RMB/FX Option Transactions in the National Interbank Foreign Exchange Market 1 Chapter I General Provisions Article 1 For the purposes of regulating the trading order of RMB/FX option transactions in the interbank foreign exchange market and safeguarding the legitimate rights and interests of members of the RMB/FX option market (hereinafter the "Members"), the Trading Rules for RMB/FX Option Transactions(hereinafter the "Trading Rules") in China Foreign Exchange Trade System (hereinafter "CFETS") have been formulated in accordance with the Regulations of the People's Republic of China on Foreign Exchange Administration, the Interim Provisions on the Interbank Foreign Exchange Market Management(PBC Document No. 423 [1996]), the Notice of the People's Bank of China on Accelerating the Development of the Foreign Exchange Market (PBC Document No. 202 [2005], hereinafter the "Notice") and other laws and regulations. Article 2 In the Trading Rules, RMB/FX Option transaction (hereinafter the "Option transaction") shall refer to a contract which gives the buyer (the owner) the right, but not the obligation, to buy or sell certain amount of underlying FX at a specified exchange rate on a certain delivery date. The buyer pays a premium to the seller for this right. The seller has the corresponding obligation to fulfill the transaction if the buyer exercises the option (European Options). Article 3 A membership-based management system shall apply to the national interbank foreign exchange market in which CFETS provides a trading system for Option Transactions among Members under the supervision of the State Administration of Foreign Exchange (hereinafter "SAFE"). Chapter II Member Management Article 4 For the purpose of the Trading Rules, Members shall make a filing with SAFE for the record in order to engage in Option Transactions. And Option Transactions among Members shall be concluded via the trading system of CFETS. Article 5 Members shall designate qualified traders to engage in transactions on their behalf and shall be liable for the trading activities of such traders. Only traders who have been trained and issued with a qualification certificate by CFETS may trade options via the trading system of CFETS. Article 6 Members shall establish and improve internal administration systems and risk prevention mechanisms, take reasonable and effective measures to monitor and manage the risks associated with option transactions, and comply with national laws, administrative regulations and other relevant provisions of the interbank foreign exchange market. 1 The Rule is written in Chinese and English. In the event of any inconsistency, the Chinese version shall prevail, and the English version is provided for convenience only

2 Chapter III Trading System Article 7 The interbank option trading system shall operate from 9:30 to 16:30 Beijing time from Monday to Friday and remain closed on statutory holidays in China. CFETS may, according to the changes in market demand, adjust the trading hours after reporting to SAFE for record filing. Article 8 In the event of force majeure, CFETS may announce a suspension of trading in part or in whole after reporting to SAFE for record filing. Upon elimination of the aforesaid factors, CFETS shall resume trading and notify members immediately. Article 9 Traders shall comply with relevant provisions in respect of the trading system and conscientiously maintain market order. In the event that any trader violates applicable provisions, CFETS shall, depending on the circumstances, be entitled to issue an oral warning or a written public reprimand, and may even revoke the qualifications of the trader. Where the case is serious, the member which the trader represents shall be held liable. Chapter IV Quotations and Trading Article 10 Members shall quote and trade via the trading system of CFETS. Article 11 Option Transactions adopt bilateral RFQ trading model. Article 12 Option transactions shall be executed in RMB against US Dollars, Hong Kong Dollars, Japanese Yen, Euros, British Pounds, Malaysian Ringgit, Russian Ruble and other currencies available on CFETS. Article 13 Members could send the bid or/and ask rates of RMB against certain foreign currency via the trading system of CFETS specified the implied volatility of such currency. Standard Option Transaction Terms include 1D, 1W, 2W, 3W, 1M, 2M, 3M, 6M, 9M, 1Y, 18M, 2Y and 3Y. As the implied volatility is agreed upon by both trading parties, they should negotiate the option premium using the parameters such as spot exchange rate, strike price, term, trading amount, the interest rates of RMB and foreign currencies. The deal should be concluded after the premium is confirmed by both trading parties through negotiation, and the premium shall be denominated and settled in RMB. Article 14 The currency, amount, term, dealt rate (premium) and settlement methods and other details shall be determined through negotiations between the parties to the transaction, which shall not be in conflict with the relevant provisions hereof. Article 15 Deal tickets for option transactions generated by the trading system (hereinafter the "Deal Tickets") shall certify that both parties have concluded the option transaction, and the deal ticket shall become effective upon confirmation by both parties via the trading system

3 Option Settlement Tickets generated by the trading system when the buyer exercises the option shall certify that the option is exercised and a new spot transaction is generated. Deal Tickets and Option Settlement Tickets are legally binding on both parties when generated. Chapter V Option Execution, Delivery and Settlement Article 16 Settlement methods shall be agreed upon by both trading parties through negotiation before the deal is concluded. For option transactions with Full Amount Delivery, the buyer of the option should have the right to exercise or give up before 15:00 on the expiry date. If the option is exercised, the trading system should generate a new spot transaction according to the strike price and the trading amount, and the new spot transaction should be send to both trading parties of the original option. If the buyer doesn t exercise the option before 15:00 on the expiry date, the option should be expired. For option transactions with Netting Delivery, the trading system should calculate the profit and loss of the option according to the difference between the strike price and the central parity rate of RMB against certain currency (hereinafter the "Central Parity Rate") on the expiry date. The trading system should expire the options which are at the money or out of the money, and will exercise in the money options after 15:00 on the expiry date unless the buyer has exercised the right to exercise or expire the option. Article 17 Option premium should be negotiated bilaterally and settled by both parties directly on T+2. In Full Amount Delivery method, the spot transactions generated from exercising options shall be netting settled when both trading parties are clearing members of Shanghai Clearing House (SHCH). Otherwise, the spot transactions shall be settled bilaterally. In Netting Delivery method, the netting amount generated from execution shall be settled in RMB bilaterally. Both parties to the transactions shall, on the settlement date (T+2), remit the amount of funds in RMB or foreign currency to the account designated by the counterparties. Article 18 In the event that the relevant settlement date for an option transaction falls on a statutory holiday for the currency issuing country or region, the date on which funds are actually delivered shall be determined with reference to "Clearing Rules for the Interbank Foreign Exchange Market" or negotiated by the parties directly. Chapter VI Emergency Trades and Trade Cancellations Article 19 In the event that normal trading cannot be conducted or Deal Tickets cannot be generated due to any equipment or communication line failure in the the option trading system, parties to transactions may conduct emergency trades. Article 20 As emergency trade is a transaction conducted by CFETS on behalf of and under the authorization of its Members; Members shall bear all legal consequences of the transaction

4 Article 21 The specific workflow for an emergency trade is as follows: If a Member is unable to log in the option trading system, CFETS shall, upon the conclusion of a transaction negotiated by the parties, enter the transaction records on behalf of such members and fax the deal ticket to their specified fax numbers. On expiry date, if the option buyer is unable to log in the system to exercise the option, CFETS shall, under the authorization of such member, exercise the option on its behalf and fax the Option Settlement Ticket to the fax numbers provided by such member. Where a Member has concluded a transaction or exercised an option via the option trading system, but it fails to generate a deal ticket or an option exercised ticket, CFETS may print the deal ticket or the option settlement ticket on behalf of the Member and fax it to the specified fax number. Article 22 With regard to any option transaction that is confirmed and/or exercised via CFETS trading system, provided that both parties to the transaction agree to cancel the trade, they shall sign the deal ticket and/or option settlement ticket generated by the trading system and explain the reasons for the cancellation, stamp it with the valid seal of the trading department and/or have the chief trader sign it, fax it to the fax number specified by CFETS, and immediately contact the person specified by CFETS for notification and confirmation. After receiving and verifying the fax sent by both parties, CFETS will cancel such trade from the trading system. Article 23 During the last thirty minutes before closing, CFETS will generally no longer accept applications filed by members for emergency trades or trade cancellations. Article 24 With respect to the revoked option transaction requested by members, CFETS shall make record of the request of the revoking party. CFETS shall make regular announcements on members who cancel transactions frequently and shall include the cancellation in the contents of assessment in selecting outstanding members. Chapter VII Charges Article 25 CFETS provides option transaction services for Members according to the principle of making compensation for services rendered. Article 26 CFETS shall, with reference to the Fee-charging Scheme for the Interbank Foreign Exchange Market, charge each party an option transaction service fee of 10 millionths of the nominal RMB amount of the transaction quarterly. And the spot transaction generated from option execution is free of charge. Article 27 According to market conditions, CFETS may adjust the charging standards for option transactions with the approval of SAFE. Chapter VIII Information Disclosure - 4 -

5 Article 28 CFETS shall, under the authorization of SAFE, be responsible for daily statistics, market monitoring and the disclosure of relevant information related to option transactions. Article 29 CFETS shall release necessary ancillary information for option transactions to members via trading terminals. Without the written approval by CFETS, Members shall not provide such information to other institutions or individuals for use or dissemination. Article 30 Where dispute on option transaction arises, and the related parties apply for arbitration or file a lawsuit, both parties shall serve the final outcome of the arbitration or lawsuit to the CFETS upon request. CFETS shall make a public announcement of the final outcome on the same day of receiving it. Chapter IX Supplementary Provisions Article 31 In the event that the parties to a transaction, for an illegitimate purpose, engage in malicious collusion, intentionally breach an agreement, or disrupt the orderly operation of the foreign exchange market by improper means, CFETS shall issue a public censure thereon. Where the case is serious, CFETS shall report the matter to SAFE, which shall impose a penalty such as membership suspension or cancellation. Article 32 Where a dispute arises between the parties in an option transaction, CFETS may provide original records on the relevant trades at the request of one or both parties. Where the dispute affects normal trading, the Member shall promptly inform CFETS. Article 33 Where a member fails to duly pay service fees for option transactions or illegally uses information relevant to option transactions provided by CFETS, or fails to comply other obligations of the members, CFETS has the right to suspend them from conducting option transactions if such member subsequently fails to take remedial action in a timely manner after receiving a warning,. Article 34 The Trading Rules are subject to the interpretation of CFETS. Article 35 The Trading Rules shall come into effect from the date of promulgation. CFETS 7 Mar