The State Administration of Foreign Exchange ("SAFE") has recently issued the Circular on Matters Concerning Improving the Management of Foreign Exchange Risks for Foreign Institutional Investors in the Interbank Bond Market (the "Circular"), with effect from February 1, 2020.
The Circular is intended to provide foreign institutional investors in the interbank bond market with more choices of foreign exchange hedges. Specifically, a foreign non-banking investor may opt for over-the-counter (OTC) trading at several domestic financial institutions or select to enter the interbank foreign exchange market indirectly under the prime brokerage mode; in addition to these two options, foreign banking investors may also enter the interbank foreign exchange market directly. Meanwhile, the Circular calls for simplifying the business procedures for foreign institutional investors to trade foreign exchange derivatives, further improving the trading mechanism for foreign exchange derivatives, optimizing the collection of information on foreign exchange trading, and reducing the trading costs borne by market players.