The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government, the branches of the SAFE in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo, CFETS, and national Chinese-funded banks:

To boost the opening up of foreign exchange markets and further facilitate management of foreign exchange risks by foreign institutional investors (foreign investors) in the interbank bond market, we hereby provide the following notification of the issues related to foreign investors' participation in China's foreign exchange market, in accordance with the Regulations of the People's Republic of China on Foreign Exchange Administration and relevant provisions:

I, foreign investors can exchange RMB for foreign exchange derivatives ("foreign exchange derivatives") and manage foreign exchange risk exposures from investing in the interbank bond market through hedging.

The foreign investors hereunder refer to the foreign investors defined by the Announcement No. 3 of the People's Bank of China [2016].

II, foreign banking investors can carry out foreign exchange derivatives transactions through any of the following channels:

(1) Transact as a client with domestic financial institutions directly.

(2) Apply to the China Foreign Exchange Trade System (CFETS) to become its member and enter the interbank foreign exchange market directly.

(3) Apply to the CFETS to become its member and enter the interbank foreign exchange market as a prime broker.

III, foreign non-banking investors can carry out foreign exchange derivatives transactions through any of the following channels:

(1) Transact as a client with domestic financial institutions directly.

(2) Apply to the CFETS to become its member and enter the interbank foreign exchange market as a prime broker.

IV, foreign investors who choose the first channel in Article II and III shall transact with no more than 3 domestic financial institutions and present the name list of financial institutions to the CFETS by themselves or their settlement agencies in advance for archiving; change of financial institutions shall be reported to the CFETS for archiving beforehand.

V, foreign investors shall comply with the following in foreign exchange derivatives transactions:

(1) Foreign exchange derivatives exposures are appropriately relevant to foreign exchange risk exposures. Foreign exchange risk exposures include principal and interest of bond investment and changes in market capitalization.

(2) After foreign exchange risk exposures change with the investments in bonds, foreign investors shall adjust the foreign exchange derivatives exposures they hold within 5 working days in the current or the next month.

(3) Foreign investors, based on the actual needs of foreign exchange risk management, can flexibly choose the transaction mechanisms including rollovers, reverse position closing, gross or balance settlement, with profits or losses settled in RMB or foreign currencies.

(4) Before carrying out the first foreign exchange derivatives transaction in accordance with this Circular, foreign investors shall make a written commitment of compliance with the hedging principles to financial institutions or the CFETS.

VI, foreign investors who choose the first channel set out in Article II and III hereabove and want to open a special foreign exchange account with a domestic financial institution other than the settlement agency can do so by presenting the business registration evidence as required by the Circular of the State Administration of Foreign Exchange on Foreign Exchange Administration for Investment in the Interbank Bond Market by Foreign Institutional Investors (Huifa No. 12 [2016]). If this special account is used for the delivery of funds, profit or loss disposal and margin management under foreign exchange derivatives transaction, the cross-border receipts and payments of funds shall be handled through the settlement agency. When the relations between foreign investors and a domestic financial institution for foreign exchange derivatives transactions are terminated, the special foreign exchange account opened with such an institution shall be closed in time.

VII, foreign investors who enter the interbank foreign exchange market directly or as a prime broker shall report relevant information on transactions as required by the CFETS.

VIII, domestic financial institutions who handle businesses for foreign investors through the first channel set out in Article II and III hereabove shall do so in compliance with the following:

(1) Report to the CFETS every day on the information of foreign exchange derivatives transactions by foreign investors.

(2) Perform the statistical and reporting obligations to the SAFE, in relation to the foreign exchange derivatives business for customers.

(3) Comply with relevant provisions of the People's Bank of China in using a third party's transaction system, platforms or facilities other than the internal transaction systems.

IX, the CFETS shall provide market services and technical guarantees in accordance with this Circular, such as counterparty archiving for foreign investors, membership market access, prime brokerage, and data collection.

X, in case of violations of this Circular by foreign investors and domestic financial institutions, the SAFE will take regulatory measures in compliance with laws.

XI, this Circular will take effect as of February 1, 2020. The Circular of the State Administration of Foreign Exchange on Foreign Exchange Risk Management by Foreign Institutional Investors in the Interbank Bond Market (Huifa No. 5 [2017]) will be abolished. In case of any discrepancies with previous regulations, this Circular shall prevail.

Upon receipt, the branches and foreign exchange administrative departments of the SAFE shall timely forward it to the relevant financial institutions within their respective jurisdictions.

   The State Administration of Foreign Exchange

January 13, 2020