The People's Bank of China (PBC) and the State Administration of Foreign Exchange (SAFE) recently announced that the foreign exchange trading time would be extended and qualified foreign players would be introduced. An official from the PBC answered press questions on relevant issues.

Q: What are your major considerations in extending the foreign exchange trading time and introducing qualified foreign players?

A: As the RMB exchange rate liberalization, convertibility and internationalization accelerate, there is a growing demand for speeding up the development of the domestic foreign exchange market, especially boosting the opening up of the market. This move is aimed at diversifying the players in the domestic foreign exchange market, expanding their trading channels and boosting the formation of consistent RMB exchange rate both at home and abroad. This is a reformative measure to deepen the development of the foreign exchange market.

Q: What adjustments will be made to the operating time of the trading system of China Foreign Exchange Trade System (CFETS)?

A: The foreign exchange trading hours will be adjusted from 9:30-16:30 to 9:30-23:30, Beijing time (the regional trading hours will remain unchanged at the moment). The operating time of the foreign currency pair and foreign currency lending system will be changed from 7:00-19:00 to 7:00-23:30, Beijing time. The market will not be closed in between.

Q: Why will the strike price of spot inquiry about the exchange rate of the RMB against the USD at 16:30 Beijing time be regarded as the closing price of the day after the extension?

A: After the extension, the market liquidity may still chiefly come from day trading in a fairly long time to come and will reflect to the largest extent the real supply-demand situation in China's foreign exchange market. But the liquidity in night trading will be poor and may heighten volatility in the market, making it easy for the exchange rate to be misstated and even be manipulated. If the exchange rate at 23:30 is regarded as the closing price, market makers may refer to this price to quote the central parity rate for the second day, thereby weakening the representativeness of the central parity rate as a benchmark. But if the market markers quote the central parity rate for the second day without referring to the closing price due to its lack of representativeness, the authoritativeness of the central parity rate quotation mechanism will be impacted, leading to a structural deviation of the closing price from the second-day central parity rate. As a result, the strike price at 16:30 will continue to be the closing price of the interbank foreign exchange market.

Q: Will the CFETS publish more reference rates for different time after the extension?

A: To facilitate foreign exchange pricing and trading and provide more reference rates for market players, the CFETS will publish reference rates for 17:00, 18:00, 19:00, 20:00, 21:00, 22:00 and 23:00 respectively on chinamoney.com.cn, in addition to those for 10:00, 11:00, 14:00, 15:00 and 16:00 as it currently does. The calculation method will remain unchanged.

Q: What will be the way of trading and trading categories allowed for qualified foreign players after their entry into the interbank foreign exchange market?

A: After entry into the interbank foreign exchange market, qualified foreign players will be allowed to participate through bidding and inquiry as provided by the CFETS trading system in the trading of all listed trading categories, including spot, forward, foreign exchange swap, currency swap and options transactions.

Q: Do qualified foreign players have to meet some qualifications for becoming members of the interbank foreign exchange market?

Q: Currently, qualified foreign players to access the interbank foreign exchange market are primarily the foreign participating banks boasting a large scale of the RMB purchase and sales business, an international reputation and regional representativeness. They will be allowed to access the market by the CFETS based on their willingness and in accordance with the laws. The application procedures, technical standards and charging for qualified foreign players to become members of the interbank foreign exchange market are the same as those for existing members.

Q: Will qualified foreign players be required to sign a master agreement with their counterparties to participate in the trading activities in the interbank foreign exchange market?

A: It is a universal practice in both domestic and foreign financial markets to sign a master agreement. To trade derivatives in China's interbank foreign exchange market, foreign players need to sign the master agreement of NAFMII or ISDA with their counterparties through their independent negotiations.

Q: Can qualified foreign players become market makers given that a market maker system is currently adopted in the interbank foreign exchange market?

A: As it takes time for qualified foreign players to adapt at the early stage after entering the interbank foreign exchange market, they will be allowed to participate in the trading activities in the market as a general member only and cannot become market markers at the moment.

Q: What adjustments will be made to the existing model of the RMB purchases and sales business after foreign participating banks access the interbank foreign exchange market?

Q: There are two business models for the foreign participating banks approved to conduct the RMB purchases and sales business to select in China's interbank foreign exchange market: First, continuing to conduct the RMB purchases and sales business directly with their domestic correspondent banks; second, applying to the CFETS for becoming a member of the interbank foreign exchange market and conducting foreign exchange trading in the market through the CFETS trading system. Foreign participating banks are allowed to choose one model only, based on their wish.

Q: Is it still necessary for a domestic bank to report through RMB Cross-Border Payment & Receipt Management Information System (RCPMIS) the information on trading with a foreign participating bank allowed to conduct the RMB purchases and sales business in the interbank foreign exchange market?

A: A foreign participating bank choosing to become a member in the interbank foreign exchange market is required to report to the CFETS at the close of the trading day the information relating the RMB purchases and sales it conducts in the interbank foreign exchange market through the CFETS trading system, and its counterparty does not need to report relevant information through RCPMIS.