Circular on the Handling of Abnormal Transactions under the Anonymous Trading Model

Zhong Hui Jiao Fa [2007] No. 302

Liquidity providers and members of the interbank FX market:

The new generation FX trading system of CFETS uses the liquidity provider API automated quotation system to support one-click mode in anonymous trading. However, due to market and technology reasons, the liquidity provider quotation engine sometimes produces abnormal quotes that result in trading prices deviating significantly from normal market prices.

With the purpose of regulating the FX market to ensure orderly trading and protect the lawful rights and interests of market participants, CFETS has formulated measures on the handling of abnormal transactions in the FX market (including RMB/FX and FX transactions) under the anonymous trading model by drawing on common practice in the international market and observing relevant regulations and agreements in the FX market, the specific details of which are as follows:

1. Where a liquidity provider (or member) considers that the price of a anonymous trading already executed deviates significantly from the normal market level and has caused it to incur a major loss, it may file a written application with CFETS (including via email or fax) requesting that CFETS help negotiate with the counterparty to cancel the transaction or disclose the name of the counterparty to facilitate negotiations between the parties.

The written application shall include the details of the abnormal transaction including: type of transaction, transaction ID, applicant's quote, market price level at the time, transaction value, etc.

The written application shall be filed promptly after the abnormal transaction occurs; CFETS shall not accept any such application after the close of market on the very day.

2. Where CFETS verifies that the case is true, it may disclose the name and contact details of the counterparty in the expectation that the parties to the transaction will resolve the matter themselves through amicable negotiations conducted in good faith. CFETS shall also provide as much assistance as possible.

3. To ensure the secure operation of the trading system, where the parties negotiate an agreement to cancel the abnormal transaction, they may deal with the matter appropriately by executing a reverse transaction through bilateral trading. CFETS will not cancel the transaction in the trading system (save in exceptional circumstances).

4. In order to avoid further losses, if any such case occurs, the liquidity provider should immediately disconnect its quotation engine from CFETS, carry out a check and adjust the same, and promptly inform CFETS. Once the engine has been returned to normal operation and needs to be connected to CFETS, the liquidity provider shall submit a written report to CFETS explaining the reasons for the issues that arose and the measures taken to address them.

November 22, 2007

Disclaimer:

The English version is for your reference only. In case any discrepancy exists between the Chinese and the English version, the Chinese version shall prevail. CFETS shall not be liable for any losses, damages or any other liabilities suffered or incurred as a result of or in connection with such discrepancy.