Unofficial English Translation *
National Association of Financial Market Institutional Investors
Public Announcement
[2010] No. 13
In order to broaden the range of credit risk management instruments in the interbank
market, improve the mechanism of market risk allocation and promote the sustainable
and healthy development of the interbank market, the National Association of Financial
Market Institutional Investors organized market members to prepare the Guidelines for
Interbank Market Credit Risk Mitigation Instruments (Pilot Scheme), which were adopted
on 27 August 2010 after review during the second meeting of the 2nd Standing Council of
the National Association of Financial Market Institutional Investors, and submitted the
People’s Bank of China for filing and approval on 28 October, and are hereby published
for implementation.
National Association of Financial Market Institutional Investors
29 October 2010
Guidelines for Interbank Market Credit Risk Mitigation Instruments (Pilot
Scheme)
Chapter I
General Provisions
Article 1 In order to broaden the range of credit risk management instruments in the
interbank market, improve the mechanism of market risk allocation and
promote the sustainable and healthy development of the market, these
Guidelines are enacted in accordance with the relevant regulations of the
People’s Bank of China (“PBOC”) and self-disciplinary rules of the National
Association of Financial Market Institutional Investors (“NAFMII”).
Article 2 “Credit risk mitigation instruments” mentioned in these Guidelines refer to
credit risk mitigation contracts, credit risk mitigation certificates and other
simple and basic credit derivative products for credit risk management
purposes.
Article 3 Participants of the credit risk mitigation instruments pilot scheme (the
“Participants”) shall strictly comply and act in accordance with the relevant
* While every effort has been made to ensure the accuracy of our translations, it is not possible to
guarantee an exact English translation of Chinese legal and regulatory provisions since each
language has its own grammatical structures, embodies different legal and cultural concepts and is
open to different interpretations.
laws, regulations, rules of regulatory authorities and self-disciplinary rules of
NAFMII, and shall be subject to the supervision from the regulatory authorities
and the self-discipline management by NAFMII.
Article 4 Participants shall follow the principles of fairness, honesty, self-discipline and
assumption of one’s own risk when conducting credit risk mitigation
instruments transactions.
Article 5 Participants shall sign the NAFMII Master Agreement published by NAFMII
when carrying on credit risk mitigation instruments business.
Chapter II
Participants
Article 6 A Participant satisfying the following criteria can become a dealer of credit risk
mitigation instruments (the “Dealer”):
(i)
having registered capital or net capital of no less than RMB800 million;
(ii)
having three or more staff members with relevant transaction experience
and business qualifications;
(iii)
not having committed breach of law or material violation of regulations
within the last two years;
(iv)
having in place the comprehensive internal control mechanism, risk
management mechanism and internal operating rules for transacting
derivative products;
(v)
being equipped with relevant system and staff for directly participating in
interbank market transactions; and
(vi)
having the internal capability of conducting valuation and risk
assessment of derivatives and being able to assume risks associated
with derivatives.
A Participant satisfying the above criteria can become a Dealer by submitting
relevant evidentiary materials to the NAFMII Secretariat Office for filing.
Article 7 A Dealer satisfying the following criteria can become a primary dealer for
credit risk mitigation instruments (the “Primary Dealer”):
(i)
having the market maker qualification on the interbank bond market or
interbank foreign exchange market;
(ii)
having registered capital or net capital of no less than RMB4 billion;
(iii)
having a track record of conducting financial derivatives business for no
less than two years, having an independent financial derivatives trading
department, and having no less than five staff members with relevant
transaction experience and business qualifications;
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(iv)
having an independent risk management department and relatively
strong capability to conduct risk management, and having no less than
five risk management staff members; and
(v)
having relatively strong capability to conduct valuation and pricing of
financial derivatives,
and having been acting actively in making
quotation and trading of financial derivatives.
A Dealer satisfying the above criteria may submit relevant evidentiary
materials to the NAFMII Secretariat Office. Once reviewed and approved by
the NAFMII Financial Derivatives Professional Committee (the “Professional
Committee”) and filed with PBOC, it can become a Primary Dealer. The
Professional Committee will establish a market-based accreditation
mechanism for Primary Dealers at the appropriate time in accordance with
market needs.
Article 8 Among the Participants, a Primary Dealer can transact in credit risk mitigation
instruments with any/all other Participants; any other Dealer can transact in
credit risk mitigation instruments with all the Dealers for its own needs, and
non-dealers can only transact in credit risk mitigation instruments with Primary
Dealers for hedging purposes.
Chapter III
Credit Risk Mitigation Instruments
Article 9 A credit risk mitigation contract refers to a financial contract entered into by
two parties which provides that, during a certain period of time, the credit
protection buyer shall pay credit protection fees to the credit protection seller
pursuant to the agreed level and method, and the credit protection seller will
provide credit risk protection to the credit protection buyer in respect of the
specified reference obligation.
Article 10 A credit risk mitigation certificate refers to a transferrable certificate, issued by
an entity other than the reference entity, which provides credit risk protection
to the certificate holder in respect of the reference obligation.
Article 11 The reference obligation(s) of credit risk mitigation instruments shall be bonds
or other similar debts. The obligor of such reference obligation is the reference
entity.
Article 12 Credit risk mitigation instrument transactions can be entered into through the
trading system of an entity recognised by PBOC or via telephone, facsimile or
other means, unless provided otherwise by PBOC.
Article 13 For each credit risk mitigation instrument, the Participants shall enter into an
effective transaction agreement, and the effective transaction agreement can
take the form of a confirmation, written contract, or letter and electronic data
with legally binding effect.
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Article 14 The parties can conduct clearing and settlement of credit risk mitigation
instruments between themselves, or through a clearing and settlement system
recognised by PBOC, unless provided otherwise by PBOC.
Chapter IV Issuance of Credit Risk Mitigation Certificates
Article 15 A Dealer satisfying the following criteria can become an issuer of credit risk
mitigation certificates (the “Issuer”):
(i)
having registered capital or net capital of no less than RMB4 billion;
(ii)
staffed with professional personnel for conducting credit risk mitigation
certificate business and equipped with the requisite business system and
information system;
(iii)
having in place the comprehensive internal operating rules and business
management system for issuance of credit risk mitigation certificates;
and
(iv)
having relatively strong capability to conduct valuation and credit risk
management, having extensive credit risk management experience, and
having no less than five risk management staff members.
A Primary Dealer, or a Dealer satisfying the above criteria, can become an
Issuer after the Professional Committee accepts its filing. The Professional
Committee will establish a market-based accreditation mechanism for ssuers
in accordance with market needs.
Article 16 The issuance of credit risk mitigation certificates shall be subject to a
registration system, and the NAFMII Financial Derivatives Expert Panel (the
“Expert Panel”) shall make the decision on whether to accept the registration
of the issuance of credit risk mitigation certificates.
The Expert Panel will not make any substantive assessment in terms of the
investment value or risk of the relevant credit risk mitigation certificate.
Article 17 The Expert Panel will consist of five experts (the “Experts”) who have in-depth
knowledge of economics and finance theories, are familiar with relevant laws
and regulations and highly experienced in financial derivatives business, and
enjoy renowned professional reputation.
Article 18 The Experts shall be nominated by members of NAFMII, and be approved by
the NAFMII Standing Council. NAFMII members that provide the nomination(s)
shall submit a reference letter and the résumé of the nominee to the NAFMII
Secretariat Office. A nominee shall satisfy the following criteria:
(i)
abiding by the relevant principles, being honest and incorruptible, and
having strong a sense of responsibility;
(ii)
being familiar with relevant laws and regulations;
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(iii)
having in-depth knowledge of economics and finance and renowned
professional reputation;
(iv)
having at least eight years of relevant work experience; and
(v)
having met any other criteria set by NAFMII.
Based on the nomination (or application for amendment) by members and the
performance of Experts in fulfilling their duties, the NAFMII Secretariat Office
shall prepare the list of Experts and submit the same to the Standing Council
for approval.
Article 19 In order to issue a credit risk mitigation certificate, an Issuer shall submit the
following documents to the NAFMII Secretariat Office :
(i)
certificate prospectus, the contents of which shall include, without
limitation, the reference entity, the reference obligation, notional amount,
term of protection, credit events and settlement mechanism etc.;
(ii)
proposed disclosure documents for issuance of certificates, which shall
include certificate issuance public announcement, the credit rating report
and the financial statements of the Issuer etc.;
(iii)
other materials as requested by NAFMII.
Article 20 An Issuer can provide performance assurance, such as security deposit, for
the credit risk mitigation certificates if necessary.
Article 21 The NAFMII Secretariat Office shall be responsible for the acceptance of
registration documents for the issuance, and shall transfer registration
documents that have all the necessary elements and comply with the relevant
risk management requirements to the Expert Panel for its review.
Article 22 Experts on the Expert Panel shall make independent decision as to whether to
accept the registration of the issuance of a credit risk mitigation certificate. The
Expert’s opinions shall be categorized into the following three: “issuance
registration accepted”, “conditional issuance registration” and “issuance
registration postponed”.
(i)
Where five Experts unanimously issue the opinions of “issuance
registration accepted”, NAFMII shall accept the registration for issuance
of the credit risk mitigation certificate, and shall issue the Notice of
Registration for Issuance to the Issuer within five working days.
(ii)
Where two or more Experts issue the opinions of “issuance registration
postponed”, NAFMII shall provide to the Issuer of the consolidated
opinion of the Experts within three working days and return the issuance
registration documents to the Issuer.
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(iii)
In situations other than the two set out above, NAFMII shall provide to
the Issuer of the consolidated opinion of the Experts within three working
days and the Issuer may provide additional materials within ten working
days. With written consent of the relevant Experts, the Notice of
Registration for Issuance shall be issued. If no additional material is
submitted within ten working days, the issuance registration documents
shall be returned to the Issuer unless explanation materials in writing are
provided.
Article 23 The Issuer shall publish the credit risk mitigation certificate disclosure
documents via the website of NAFMII within ten working days after receiving
the Notice of Registration for Issuance from NAFMII.
Article 24 The Issuer shall complete the sale of credit risk mitigation certificates within
five working days after the publication of the disclosure documents, and shall
carry out credit risk mitigation certificate registration on the same day of the
settlement of funds.
Article 25 The Issuer shall report the issuance result to NAFMII by the next working day
after it completes the registration of credit risk mitigation certificate, and make
public announcement via the website of NAFMII. The unused quota for
issuance registration shall be cancelled.
Article 26 The credit risk mitigation certificates can be traded and transferred on the
interbank market from the working day following the completion of registration
procedure.
Article 27 The Issuer can buy back and cancel credit risk mitigation certificates issued by
itself.
Article 28 On the same day that the certificate cancellation procedure is completed, the
Issuer shall make public announcement in the market via the website of
NAFMII.
Chapter V
Information Disclosure and Filing
Article 29 The Participant shall be responsible for the truthfulness, accuracy and
completeness of the information that is disclosed or submitted, and there shall
be no false description, misleading statements or material omission.
Article 30 When a Participant trades credit risk mitigation instruments, it shall provide
requisite information that is related to the transaction promptly to the
counterparty, and shall ensure the truthfulness, accuracy and completeness of
the information, and shall not make fraudulent or misleading statement to the
counterparty.
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Article 31 Upon occurrence of a material event which may affect the performance of the
transaction, the affected party shall notify the counterparty promptly and report
to NAFMII. Where the affected party is an Issuer, the Issuer shall make public
announcement to the market via the website of NAFMII.
Article 32 Within the term of the credit risk mitigation certificates, the Issuer shall provide
continuous information disclosure on the website of NAFMII in accordance
with the following requirements:
(i)
disclosing the credit rating report, annual report, financial statements and
audit report for the previous year before 30 April of each year;
(ii)
disclosing the financial statements for the first half-year before 31 August
of each year; and
(iii)
disclosing the financial statements for the first and third quarters before
30 April and 31 October, respectively, of each year.
Article 33 A Dealer shall submit the credit risk mitigation instruments trading report to
NAFMII for filing before 12:00 pm of the next working day after the trade date.
Article 34 After the close of a working day, the trading, clearing or settlement entities
recognised by PBOC shall submit the credit risk mitigation instruments
business operation report for that day to NAFMII.
Article 35 A Dealer shall submit the credit risk mitigation instruments risk exposure report
to NAFMII on a weekly basis.
Article 36 Within 10 working days after the close of each quarter, a Primary Dealer shall
submit to NAFMII a written report on the credit product market analysis for that
quarter, and the report of its trading of credit risk mitigation instruments and its
position status.
Article 37 NAFMII will promptly make disclosure to the market of credit risk mitigation
instruments trading statistic data and other information in accordance with the
relevant regulations of PBOC.
Article 38 NAFMII shall report the market status of credit risk mitigation instruments to
PBOC on a regular basis, and report to PBOC promptly when an irregularity is
discovered.
Chapter VI Risk Control and Management
Article 39 A credit risk mitigation instrument transaction shall expressly set out the
conditions of settlement and settlement method upon the occurrence of credit
events. Settlement methods include, without limitation, physical settlement,
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cash settlement and auction settlement. The rules for auction settlement will
be separately formulated by the Professional Committee.
Article 40 A Participant shall not engage in credit risk mitigation instruments transactions
where the reference obligation is its own obligation or the obligation of any of
its affiliates.
Article 41 A Participant must not manipulate in any manner the price of credit risk
mitigation instruments and the price of the relevant reference obligation.
Article 42 A Dealer shall conduct credit risk mitigation instruments transactions within the
following risk control requirements:
(i)
for any Dealer, its outstanding net long position in respect of credit risk
mitigation instruments referencing a particular reference obligation shall
not exceed 100% of the total outstanding amount of that reference
obligation;
(ii)
for any Dealer, its outstanding net short position in respect of credit risk
mitigation instruments referencing a particular reference obligation shall
not exceed 100% of the total outstanding amount of that reference
obligation;
(iii)
for any Dealer, its aggregate outstanding net short position in respect of
all credit risk mitigation instruments shall not exceed 500% of its
registered capital or its net capital;
(iv)
the aggregate notional amount of credit risk mitigation certificates
referencing a particular reference obligation shall not exceed 500% of
the total outstanding amount of that reference obligation.
The outstanding long position and outstanding short position of credit risk
mitigation instruments shall be calculated on the aggregate basis of the entire
outstanding amount for all the instruments that have not matured. The above
risk control requirements shall be adjusted by the Professional Committee at
the appropriate time in light of the market conditions.
Article 43 The two parties of credit risk mitigation instrument transactions may agree to
establish performance assurance mechanism in light of the creditworthiness of
the counterparty.
Article 44 Where there is any dispute between the parties regarding a credit event, the
parties can request the Professional Committee to issue relevant opinions.
Article 45 Where there is any dispute arising from a credit risk mitigation instruments
transaction, the two parties can submit the dispute to arbitration institution or
the people’s court for resolution in accordance with their agreement, and the
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parties shall deliver the final arbitral award or judgment to NAFMII by 12.00
noon of the next working day after their receipt thereof.
Article 46 NAFMII will carry out enforcement in accordance with relevant self-disciplinary
rules over Participants who violate these Guidelines.
Chapter VII Ancillary Provisions
Article 47 Where the Participants carry on credit risk mitigation instruments business
other than credit risk mitigation contracts or credit risk mitigation certificates,
the Participants shall conduct registration by reference to the relevant
requirements applicable to credit risk mitigation certificates, and the relevant
post-registration requirements shall be implemented by reference to the
relevant provisions of these Guidelines.
Article 48 NAFMII Secretariat Office is in charge of interpretation of these Guidelines.
Article 49 These Guidelines shall take effect from the date of publication.
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