HKMA Circular Regarding SFC Guidance on Potential Listing of RMB Denominated Products

HONG KONG MONETARY AUTHORITY
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Banking Conduct Department
Our Ref: Bl/15C
G16/1C
3 September 2010
The Chief Executive
All Authorized Institutions
Dear Sir / Madam,
Circular Issued by the Securities and Futures Commission (SFC) Regarding Potential Listing of Products Denominated in Renminbi (RMB) I am writing to draw your attention to a circular issued by the SFC on 31 August 2010 ("the SFC Circular"). The SFC Circular advises intermediaries to ensure their readiness for future launches of listed RMB denominated products. Intermediaries are reminded to make necessary preparations for trading and settlement of such products. A copy of the SFC Circular is attached at Annex. Authorized institutions (Als) that plan to engage in the trading and settlement of listed RMB denominated products should implement proper internal controls and necessary operational and system changes. In addition, Als that plan to provide customers with RMB loan facilities to facilitate the latter's investment in such products are reminded that RMB lending to personal customers and Designated Business Customers (DBCs) is currently not permissible'. While Als are permitted to extend RMB loans to corporate customers including other financial intermediaries, they should take reasonable steps to ascertain that such loans will not in tum be lent by the corporate customers concerned to personal customers and DBCs, i.e. Ais should not knowingly lend to corporate customers in an arrangement to circumvent the said requirement. Yours faithfully, Meena Datwani Executive Director (Banking Conduct) Encl. c.c. SFC (Attn: Mr Stephen Po, Senior Director of Intermediaries Supervision) 1 For more information on the restriction on RMB lending, refer to item 13 of the Frequently Asked Questions attached to the HKMA circular "Renminbi Business in Hong Kong" dated 19 July 2010. For the meaning of DBCs, refer to the HKMA circular "Personal Renminbi Business in Hong Kong" dated 13 December 2005. 55th Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong Tel: (852) 2878 8100 Fax: '(852) 2878 2100 E-mail: Meena_Datwani@hkma.gov.hk Website: www.hkma.gov.hk w m 9" Iiit ~ i'M1!:r8 !I..~ Iii ~ 11iP. 9" ,t,,2 :Wl 55tl "it ~ii : (852) 2878 8100 1$ A: (852) 2878 2100 it 11!~ : Meena_Datwani@hkma.gov.hk !,liJ ±.tl: : www.hkma.gov.hk

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SECURITIES AND FUTURES COMMISSION
:
證券及 期發事務 監察要 員 全 Circular
31 August 2010
Circular to SEHK Exchange Participants
Preparation for business activities arising from potential listing of products denominated in renminbi (RMB) Further to the recent circulars issued by the Hong Kong Monetary Authority (HKMA), the Stock Exchange of Hong Kong Limited (SEHK) and the Hong Kong Securities Clearing Company Limited (HKSCC) regarding RMB business in Hong Kong and operational readiness for trading and settlement of listed RMB denominated products respectively (Note), the Commission reminds exchange participants to ensure their readiness for future launches of listed RMB denominated products. ln particular, exchange participants should pay particular attention to the following matters when making preparations for trading and settlement of listed RMB denominated products:
“1. Arrange with SEHK and HKSCC to test the capability of your trading and clearing systems in handling listed RMB denominated product transactions with reference to the circulars issued by the SEHK and HKSCC;
2. Review the readiness of your front office, back office and internet trading systems
to handle the trading and settlement of listed RMB denominated products, including keeping proper accounting records of transactions in such products, generating appropriate trading documentation (such as trade confirmations and contract notes) in respect of such transactions, and instructing system vendors to make any appropriate changes to your IT systems etc;
3. Arrange with your clearing banks as soon as possible to open RMB bank accounts
(including a RMB trust bank account to segregate client money denominated in RMB) and, where applicable, to set up RMB credit facilities, taking into account the processing time required by banks and the HKSCC to complete the setup of a RMB designated bank account in CCASS; and
4. Establish effective operating and risk management controls to prudently manage
liquidity and exchange rate risks when conducting RMB denominated business. In particular, brokers who intend to provide margin loans to clients for dealing in listed RMB denominated products should pay special attention to the risks of

• currency mismatch and exchange rate fluctuations on top of credit risk in
  designing their margin call systems.
  Should you have any queries regarding the contents of this circular, please contact Ms Madonna Yip on 2842-7618. Intermediaries Supervision Department Securities and Futures Commission Note:
  The circulars refer to:
• Circular issued by the HKMA on 19 July 2010 entitled “RMB Business in Hong
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  Tel: (852) 2840 9222 Fax: (852) 2523 4598 Website: www.sfc.hk
  Annex

SECURITIES AND FUTURES COMMISSION x
獨券及 期 貨事務 監察要 員 會 Circular
Kong’ (circular reference no. B1/15C)

• Circular issued by the SEHK on 19 August 2010 entitled “Operational readiness
  for Trading of Renminbi (RMB) Products” (circular reference no. CMD/TMO/034/10)
• Circular issued by the HKSCC on 19 August 2010 entitled “Operational readiness
  for CCASS Money Settlement in Renminbi (RMB)” (circular reference no. CD/CCO/CCASS/133/2010) End SFO/18/018/2010 ’ 20f2 Tel: (852) 2840 9222 Fax: (852) 2523 4508 Website: www.sfe.hk