Trade Service

1) RMB/ foreign currency spot trading

Membership
The interbank FX market has adopted a membership system. All the banks, non-banking financial institutions and non-financial corporations satisfying the qualifications set by the regulators for the interbank FX spot trading can apply for membership to CFETS and conduct principal trading in the interbank spot FX market.
Trading mode
The interbank FX market employs an electronic matching system and an OTC trading system. For electronic matching, the members quote independently and the trade system matches the quotations in priority of price and order. For OTC trading, the system provides technological facilities for members to negotiate directly on such trading factors as trading currencies, exchange rate and amount, according to the principle of "bilateral credit, bilateral clearing". Members can choose either mode.
Trading hours
Trade hour of automatic price-matching transaction 9:30 to 15:30, Trade hour of OTC transaction：9：30　to 17:30　(Beijing time), Monday through Friday (Chinese holidays excluded).
Trading instruments
The system offers spot trading of RMB against the USD, HKD, JPY and EUR.
Determination of exchange rate
From January 4, 2006, the central rate of the RMB against the US dollar is determined in the following way: The China Foreign Exchange Trading System shall first enquire prices from all market makers before the opening of the market in each business day, exclude the highest and lowest offers, and then calculate the weighted average of the remaining prices in the sample as the central rate of the RMB against the US dollar for the day. The weights shall be determined by the China Foreign Exchange Trading System in line with the transaction volumes of the respective market makers in the market as well as other indicators such as the quoted prices etc.
Clearing
The RMB/ FX spot market automatic price-matching trade system adopts the clearing principles of "centralized, two-way and netted". CFETS handles clearing for all trading members. The clearing speed in the FX market is T+2. RMB clearing goes through the payment system owned by the PBC, and foreign currencies are cleared through overseas clearing systems. According to the deal ticket generated by the system, the two parties in an OTC transaction shall settle the deal with the clearing speed of T+2, T+1 or T+0 by their own arrangement.

2) Foreign currency/ foreign currency spot trading

Trading mode
The interbank foreign currency pairs trading is market maker quote-driven. After the liquidity provider quotes the currency pairs in the market, the trading system chooses and publishes the best quotations. At the same time, it matches the best quotation of liquidity providers with trading orders of member banks according to the principle of price and time priority, with real-time transaction feedbacks provided to the trading parties. Member banks make deals through One Click, Limited Order or RFQ.
Trading participants
Financial institutions approved by the supervisory department to operate foreign currency trading business, including liquidity providers and member banks.
Trading hours
The system is open from 7:00 to 19:00 (Beijing time), Monday through Friday (Chinese holidays excluded).
Trading currencies
EUR/USD, AUD/USD, GBP/USD, USD/JPY, USD/CAD, USD/CHF, USD/HKD, EUR/JPY
Clearing mode
The currency pairs business adopts the "centralized and netted" clearing principle. "Centralized" means that all liquidity providers and member banks take CFETS as their central clearing counterparty. "Netted" means that all liquidity providers and member banks make clearing based on the netted amount of the trades in the same currency and with the same value date. The clearing speed is T+2.

3) RMB/ foreign currency forward trading

Trading mode
The counterparties trade through the CFETS OTC trading system. Trading currencies, amount, term, exchange rate, and delivery arrangements are decided through negotiation between the trading counterparties. To clarify the rights and obligations of the trading counterparties, FX forward market members should sign the master agreement for interbank forward FX trading.
Clearing mode
The bilateral clearing mode used could be either gross principal delivery at maturity or netted delivery based on the difference between the agreed forward rate and spot rate at the maturity date. To avoid default risk and ensure the fulfillment of forward FX trading contract, members can set margins in line with the credit situation of the counterparties. The margins may be placed in CFETS account for custody.
Trading participants
Members of CFETS who have license for financial derivatives trading issued by the supervisory department. Legal entity filing management is imposed on the interbank forward FX market participants by SAFE.
Trading hours
9:30 - 17:30 (Beijing time), from Monday through Friday (Chinese holidays excluded).

4) RMB interbank lending

Organizational principle
The PBC is the authority in charge of the national interbank lending market. CFETS organizes market operations and provides the electronic trading system.
Operations mode
The trading mode is price inquiry. After quotations are confirmed by the members, the transaction notice will be automatically produced by the trading system as valid proof of dealing.
Trading instruments
Trading parties can agree on any maturities of up to four months. CFETS calculates and publishes the weighted average rate, named CHIBOR, for maturities of overnight, 7-day, 14-day, 21-day, 1-month, 2-month, 3-month and 4-month.
Trading hours
The system is open from 9:00 to 12:00, and from 13:30 to 16:30(Beijing time), Monday through Friday (Chinese holidays excluded).
Membership
The participants are the PBC-approved financial institutions with independent legal identity, including commercial banks and their authorized branches, rural credit cooperatives, urban credit cooperatives, financial companies, securities companies, and those foreign financial institutions that are approved by the PBC to handle RMB business.
Clearing
The trading parties perform bilateral gross clearing according to the transaction notice. The clearing speed is T+ 1or T+0.

5) RMB bond trading

Trading instruments
Bond trading includes cash bond trading, bond pledged repo, bond outright repo and bond forward trading. Bonds traded include government bonds, financial bonds, central bank papers, subordinated bonds issued by commercial banks, short-term bills , corporate bond, asset-backed securities, etc.
Trading terms
With pledged repo terms ranging from one day to one year, the trading system calculates and publishes the volume and price of pledged repo for 1-day, 7-day, 14-day, 21-day, 1-month, 2-month, 3-month, 4-month, 6-month, 9-month and 1-year. With outright repo terms ranging from one day to 91 days, the trading system calculates and publishes the volume and price of outright repo for 1-day, 7-day, 14-day, 21-day, 1-month, 2-month, and 3-month. With bond forward terms ranging form one day to 365 days, the trading system calculates and publishes the volume and price of bond forward for 1-day, 7-day, 14-day, 21-day, 1-month, 2-month, 3-month, 4-month, 6-month, 9-month and 12-month.
Trading hours
The system is open from 9:00 to 12:00, and from 13:30 to 16:30 (Beijing time), Monday through Friday (Chinese holidays excluded).
Membership
Since April 2002, a filing system has been adopted for bond market access. All institutions qualified for bond trading can participate in the market, including commercial banks and their authorized branches, deposit taking financial institutions such as rural credit cooperatives and urban credit cooperatives, non-banking financial institutions such as insurance companies, securities companies, fund management companies, and financial companies, and foreign financial institutions that handle the RMB business.
Clearing
The bond custodian settlement and funds clearing are conducted through the China Government Securities Depository Trust & Clearing Co. Ltd. and the payment system of the PBC respectively. The system adopts three clearing modes of "payment after delivery", "delivery after payment" and "delivery vs. payment".
Turnover of the RMB interbank lending and bond market

6) Paper market service

In order to satisfy the demands of CP market development, CFETS launched www.chinacp.com.cn on June 30, 2003. The website is designed to provide such services as quoting, trading, inquiry, and market information. At present, the CP quotation system can provide the market with quotations of the CP rediscount and repo, and inquiry of the CP rediscount and repo quotation. Those legal entity financial institutions qualified for paper business and their authorized branches can use the www.chinacp.com.cn.

7) Voice brokering

In order to satisfy the multiple demands of various financial institutions, especially the small and medium-sized financial institutions, and as an effective supplement to the electronic trading mode, CFETS introduced voice brokering into the money market and FX market in July, 2001 and June, 2002 respectively.
CFETS, entrusted by financial institutions, seeks potential counterparts, provides market analysis, and facilitates transactions by telephone, fax and the internet, etc.
Those legal entity financial institutions qualified for market financing and FX lending and their authorized branches that have signed the Agreement of Brokering Services with CFETS are the customers of the voice brokering service.
At present, the RMB voice brokering covers bond repo, cash bond, bond distribution, paper business, interbank lending and other businesses permitted by the development of the market and related policies. The brokering service of FX lending mainly covers USD, EUR, JPY and HKD with the lending maturity of less than one year.

8) Miscellaneous

Same-city overnight deposit
In order to satisfy the demand for overnight RMB positions of those financial institutions that open accounts with the operations offices of the PBC at day-end clearing, CFETS introduced a same-city overnight deposit system. The operations office of the PBC can make overnight deposits through this system within the authorization of financial institutions. At present, eight operations offices of the PBC in cities like Shanghai, Chengdu, and Xi'an etc. adopt this system.

Interbank lending (for maturities of over 4 months)
In order to satisfy the commercial banks' demand for RMB funding for maturities longer than four months, according to relevant management measures of the PBC, CFETS developed a service system for inquiry, quotation, and recording of such interbank lending.

1) Direct clearing for FX market members

CFETS provides centralized clearing for members of the spot RMB/FX market and foreign currency pairs market under the principle of "centralized and netted". The clearing of RMB goes through the payment system owned by the PBC, and foreign currencies are cleared through overseas clearing systems. A backup real-time clearing system is established in the Beijing Back-up Center.

2) Indirect clearing for money market members

The RMB trading system boasts clearing tracking and prompting functions, which automatically remind the members of the capital flow on the settlement day. The accounts receivable that have not been received would be reported to CFETS through the system. CFETS would help the members concerned to find out the reasons for the overdue accounts and report to the authority in charge.
CFETS also provides the bond forward market participants with the centralized margin management service through the margin management account with the PBC.

Technology service

CFETS adopts a double-backup structure (in Shanghai and Beijing), while the national communication networks operated by different telecommunication companies are backups to each other, forming a real-time electronic trading platform across the whole country. It has been appraised as a system of rational design, complete functions, reliable operation with a friendly user interface. It is a systems engineering of advanced level in China.
For years, CFETS has devoted itself to establishing a safe, efficient and reliable electronic trading platform. In order to keep pace with market developments, the digital certification center was established in 2002, the network capacity was expanded and the system upgraded. Seven relay stations were set up in Shanghai, Beijing, Guangzhou, Shenzhen, Jinan, Tianjin and Dalian. All members are connected to the network through these stations. The security, stability, efficiency and capacity flexibility of the system have been improved greatly, which provides powerful technical support for the unified nationwide network and contributes to the increase in participants as well as turnover.

Information service

www.chinamoney.com.cn

Objective www.chinamoney.com.cn is the platform provided by CFETS for information about interbank market trading, quoting and filing of small and medium-sized financial institutions and the filing of bank's FX sale and purchase. For the purposes of promoting trade, controlling risks, and facilitating surveillance, the website provides convenient channels and basic information for financial institutions to widely participate in the market, capture market movement and quotation, acquire counterpart's credit worthiness, understand policies and regulations, learn operational skills, exchange business experiences, foster market personnel, and promote institutions' image. www.chinamoney.com.cn also provides quoting services for those financial institutions that have not been connected to the trading system of CFETS, and market surveillance service for PBC and SAFE.

Connection manner　Dedicated line (trading system) or internet.

Main columns The columns include market review, FX market, lending market, bond market, paper market, gold market, quotation filing, statistics and surveillance, members' credit worthiness, economic and financial news, special forum and member services.

Market analysis and risk management system (F-system)

Objective The market analysis and risk management system (F-system) provides market members with basic bond analysis functions and primary information on the market. It helps members to manage their trading data and historical trading information with their counterparts. The F-system effectively integrates trading with analysis and controls trading and credit risks before clearing, which is a beneficial experiment in applying international advanced financial theory to the national interbank market.

Content At present, the F-system modules online include market conditions, bond yield analysis, position management, counterparty management, term structure analysis and VaR analysis. Besides, the F-system also provides functions such as data download, system instrument, and sophisticated online help.

Surveillance service

Objective In order to meet the demand for real-time supervision of supervisory authorities like PBC, CFETS has established a market supervision service system based on www.chinamoney.com.cn, through which the supervisory authorities can effectively supervise the development of the money market, limit and control financial risk, and guaranttee healthy and orderly development of the money market.

Contents The supervision service system is composed of two parts: statistics surveillance and electronic recording.
Statistics surveillance system provides PBC and its branches, SAFE and its branches with market statistic information needed for policy decision-making and market surveillance, and has the function of monitoring market trading. The system also provides market participants with trading statistics of the interbank market, and helps financial institutions to monitor trading.
According to the demands of PBC for surveillance of those financial institutions that have not been connected to the trading system, CFETS has developed an electronic recording system for FX sale and purchase and RMB interbank lending, which provides the non-connected financial institutions with electronic services such as recording, quoting, trading, and clearing prompting. The system also provides the PBC and its branches with relevant services such as recording and statistics, transaction statistics, transaction analysis, and credit surveillance.

CHINAMONEY Journal