Article 1. In line with the law of the People’s Republic of China on the People’s Bank of China, other relevant laws and administrative regulations, these rules are formulated for the purposes of regulating bond forward transactions, safeguarding the legitimate rights and interests of market participants, promoting the healthy development of the bond market.

Article 2. A forward bond transaction (hereinafter referred to as forward transaction) refers to a transaction in which the parties agree to purchase/sell a predetermined amount of bonds at given prices on a predetermined date in the future.

Article 3. Bonds to be transacted in the forward market shall be limited to central government bonds, central bank bonds, financial bonds and other bonds authorized by the People’s Bank of China whose cash transactions have been conducted in the National Inter-Bank Bond Market.

Article 4. Forward transaction shall be carried out in an open, fair, and equitable way.

Article 5. Market participants in forward transaction shall be institutional investors who have already become members of the National Inter-Bank Bond Market.

Article 6. Market Participants shall build and improve their internal control and risk management system, and take effective measures to monitor and manage risks associated with forward transaction.

Before starting to conduct forward bond transaction, a market participant shall submit a report on its internal control of forward transaction risks to relevant supervisory agencies, and concurrently copy to the National Inter-Bank Borrowing Center and the China Government Securities Depository Trust and Clearing Co, Ltd.

Article 7. Market participants engaged in forward transaction shall sign a "forward transaction main agreement".

Article 8. Market participants shall conduct forward transaction through the National Inter-Bank Borrowing Center, and sign a written contract for each transaction which takes the form of business statement generated by the trading system of the Inter-Bank Borrowing Center. When deemed necessary, parties of a transaction may sign supplementary contracts.

Forward transaction main agreement, business statement generated by the trading center of the National Inter-Bank Borrowing Center and the supplementary contracts make up a complete forward transaction contract.

Article 9. A forward transaction contract established by the law shall be legally binding for both parties of the transaction and neither party may alter or terminate the contract unilaterally.

Article 10. Forward transaction parties may negotiate safeguard mechanism to ensure contract fulfillment based on each other’s credit standing.

Article 11. The duration of a forward transaction spanning from the transaction date to the settlement date (inclusive of transaction date but not the settlement date) shall be determined by both sides of the transaction, and shall not exceed 365 days at maximum.

Article 12. A forward transaction shall be conducted at net price but settled at full price.

Article 13. Both parties of a forward transaction shall send settlement direction and other auxiliary direction to the China Government Securities Depositary Trust and Clearing Co, Ltd on the transaction date or the next working day.

Article 14. When a forward transaction contract reaches maturity, both parties shall conduct full money versus bond transaction.

Article 15. For each market participant (fund management companies which use the managed asset to conduct forward transaction are defined to be a single fund), its outstanding balance of purchase and sale of a particular single bond may not respectively exceed 20% of the bond traded, and its outstanding balance of sale may not exceed 200% of total balance of bonds self-possessed and at its own disposal.

Article 16. For any fund management company as a market participant, its outstanding balance of net purchase may not exceed 100% of the net worth of its managed assets. For a financial institution, its outstanding balance of net purchase in forward transactions as effected by its branches in China may not exceed 100% of its RMB working capital. For any other market participant, its outstanding balance of purchase in forward transactions may not exceed its paid-in capital or 100% of its net assets.   

Article 17. Market participants may not manipulate in any way the forward price of the bond, or the spot price of the traded bond through forward transactions.

Article 18. The National Inter-Bank Borrowing Center and the China Government Securities Depository Trust and Clearing Co, Ltd shall, in accordance with the stipulation and authorization of the People?s Bank of China, disclose in a timely fashion information related to forward transactions and settlements, but not information of confidentiality or misleading the market participants.

Article 19. The National Inter-Bank Borrowing Center and the China Government Securities Depository Trust and Clearing Co, Ltd shall be responsible for the monitoring of the forward transactions and settlements, respectively on a daily basis. In the case of detection of abnormality in terms of either in transactions or in settlements, relevant emergency system shall be put into operation and such an abnormality shall be reported to the people?s Bank of China.

Article 20. The National Inter-Bank Borrowing Center and the China Government Securities Depository Trust and Clearing Co, Ltd shall establish respective rules on forward transactions and settlements in line with these rules.

Article 21. Branch offices of various levels of the People’s Bank of China shall strengthen communication with the National Inter-Bank Borrowing Center and the China Government Securities Depository Co, Ltd, and conduct surveillance and inspection over the forward transactions of the market participants within their jurisdiction on a daily basis.

Article 22. Apart from these rules, market participants shall also abide by other rules governing the National Inter-Bank Bond Market.

Article 23. Where a default in forward transaction occurs and a dispute exists regarding the fact of or responsibilities for such a default, both parties may negotiate to refer to arbitration or sue to the People?s Court. The arbitration verdict or the final court ruling shall be reported to the National Inter-Bank Borrowing Center and the China Government Securities Depository Trust and Clearing Co., Ltd before 12:00 pm the next working day following the date on which the arbitration verdict or final court ruling is received. The National Inter-Bank Borrowing Center and the China Government Securities Depository Trust and Clearing Co., Ltd shall make public the final result on the same date as it is received.

Article 24. In the case the market participants, the National Inter-Bank Borrowing Center and/or the China Government Securities Depository Trust and Clearing Co., Ltd breach these rules, they shall be penalized by the People’s Bank of China in line with provisions under Article 46 of the Law of the People’s Republic of China on the People?s Bank of China.

Article 25. The People's Bank of China may make some amendments to article 11, 14,15 and 16 of these rules at appropriate time and in line with the development of the forward bond transaction business.

Article 26. These rules are interpreted by the People’s Bank of China.

Article 27. These rules shall enter into effect on June 15, 2005.

May 11,  2005