To implement the Circular of the State Administration of Foreign Exchange on the Improvement of Foreign Exchange Risk Management by Foreign Institutional Investors in the Interbank Bond Market(HuifaNo.2[2020]) and meet the various requirements of FX market participants, with the approval of the State Administration of Foreign Exchange, the China Foreign Exchange Trade System (CFETS) is planning to launch the prime brokerage business in the China Interbank FX Market (“CIFXM”).The details are as follows:

I. Overview

The Prime brokerage business in the CIFXM refers to that the Prime Brokerage Client uses the credit lines and/or name of a Prime Broker to enter into transactions with executing counterparties via the prime brokerage function on the CFETS Trading System. Each prime brokerage transaction will be automatically split into two back-to-back trades by system: one between the Prime Broker and the executing Counterparty, and one between the Prime Broker and the Prime Brokerage Client.

II. Business Arrangements

(I) Scope

Prime brokerage business applies to the interbank RMB/FX market and the interbankG10 currency pairs market. Among which, currently in the RMB/FX market it is only available to the management of the foreign exchange risk arising from investment in the interbank bond market under CIBM Direct.

(II) Participants

1. Prime Broker. Prime Brokers shall meet certain requirements, such as the number of valid counterparties, bilateral credit limit, trading volume, and risk management system, among others. Domestic market makers in the interbank RMB/FX market may file with CFETS to become Prime Brokers for corresponding market; market makers and members in the interbank G10 currency pairs market may file with CFETS to become Prime Brokers for corresponding market.

2. Prime Brokerage Client. Under CIBM Direct, foreign investors who complying with the Public Notice No. 3 [2016] of the People’s Bank of China (PBC) and other relevant regulations may apply to CFETS to become a CIFXM member; foreign non-bank members and foreign bank members that intend to participate in the prime brokerage business shall file with CFETS to become Prime Brokerage Clients. Market makers and members in the interbank G10 currency pairs market may file with CFETS to become Prime Brokerage Clients.

(III) Products and Trading Models

1. RMB/FX Market. Prime Brokerage Clients in this market may act as a “Taker” (LC)to trade FX forwards, swaps, and other FX derivatives through bilateral RFQ and other trading models, for the purpose of hedging against the foreign exchange risks arising from the investment in the interbank bond market.

2.G10Currency Pairs Market. Prime Brokerage Clients in this market may act as a “Maker” (LP) or “Taker” to trade spot, forward, swap, and other derivatives transactions in G10 currency pairs, through matching (ODM),bilateral trading (including RFQ and ESP), and other trading models.

(IV) Rules and Agreements

Prime Brokers and Prime Brokerage Clients that engage in prime brokerage transactions through CFETS should abide by the Guidelines for the Prime Brokerage Business in the China Interbank FX Market (Trial) (Appendix 1) as well as the trading rules and member agreement of the CIFXM.

The rights and obligations relations between the Prime Brokers and Prime Brokerage Clients shall comply with the mutually signed prime brokerage agreements and etc.  

(V) Fees

The Prime Brokers shall pay the service fee of RMB 10,000 yuan/month for using the prime brokerage function via the CFETS trading system.

III. Business and System Preparations

(I) Business Filing

A market maker or member in the CIFXM (including the interbank RMB/FX market and the interbank G10 currency pairs market) who intends to become a Prime Broker or Prime Brokerage Client may sign the bilateral prime brokerage agreement, then submit the CFETS Filing Form for Prime Brokerage Business (Appendix 2) and the duplicate copy of the prime brokerage agreement to CFETS for the filing process.

In particular, a foreign institutional investor in the interbank bond market who intends to become a Prime Brokerage Client should apply to be a CFETS member of the interbank RMB/FX market, in accordance with the CFETS Notice on the Enhanced Management of Foreign Exchange Risk for Foreign Institutional Investors in the Interbank Bond Market(Zhong Hui Jiao Gong Gao [2020] No. 7)and other applicable market entry rules of CFETS.

(II) System Preparation

1.Interface updates. The CFETS will provide a guidance for updating the CSTP interface to Prime Brokers who in need. The Prime Brokers shall apply to CFETS for system testing and acceptance procedures after interface updates.

2.Authorization configuration. A Prime Broker should conform to the terms and conditions of the prime brokerage agreements with its Prime Brokerage Clients and submit the CFETS Application Form for Prime Brokerage Configuration Settings (Appendix 3) to CFETS. The CFETS will configure the business scope and authorizations accordingly.

3. Service launch. After completing the above-mentioned preparations, the Prime Broker and Prime-Broker Clients may contact CFETS to confirm the agreed-upon launch date for the service.

IV. Contact Information

Prime brokerageapplication:021-23165027

Business inquiry:021-23165164;021-20693742

Technical support:021-20693815

Appendices:

1.     Guidelines for the Prime Brokerage Business in the China Interbank FX Market (Trial)

2.     CFETS Interbank FX Market Filing Form for Prime Brokerage Business

3.     CFETS Application Form for Prime Brokerage Configuration Settings

China Foreign Exchange Trade System

May 27, 2020

[Note]: In the event of conflicts, contradictions, imprecision, mistakes or omissions between the Chinese version and the English version, the Chinese version shall prevail as the only version of this Notice.