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NAFMII and its works

in Building and Strengthening the Self-regulatory Framework in

China Interbank Market

National Association of Financial Market Institutional Investors

December 2009

www.nafmii.org.cn

Contents

NAFMII Overview

NAFMII and Debt Financing Vehicles

NAFMII and Secondary Market Self-Regulation

NAFMII’s Experiences & Blueprints

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Self-Regulation Organization in Interbank Market of China

Interbank Market is China OTC financial market,which is composed of

interbank bond market, interbank lending market, foreign exchange market,

commercial paper market and gold market.

Founded on September 3, 2007

Nationwide non-profitable association

Under the supervision of People’s Bank of China (PBC)

About NAFMII

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Association Members

Institutional members （Up to the end of October, 2009）

104 Banks: policy banks, commercial banks, credit cooperative banks, etc.

80 Non-bank Financial institution: securities houses, insurance companies, mutual fund, trust

and investment companies, finance companies affiliated with corporations, etc.

5 Financial service intermediaries: trading center, clearing houses, money brokers

243 Intermediaries: rating agencies, accounting firms, law firms, etc.

533 Non-financial corporates

Others: Ministry of Railways, National Council for Social Security Fund

Individual members

Inter-bank market practitioners and experts (8 persons)

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Self-Regulation

Monitoring the operations and conducts of the market players by applying self-disciplinary rules

in the inter-bank market and preserving a proper competitive market order.

Innovation

Fostering the innovation of financial products and promoting the development of financial

markets.

Service

Providing services to the members, facilitating their communication, providing training and

information service, and protecting the lawful rights and interests of the members.

Providing services to government and implementing government policies to better enhance

reciprocal communications between the government and the market.

Mission & Objectives

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To formulate market self-regulatory rules, business norms and professional ethics, and supervise

the implementation of these rules;

To manage the registration for Non-financial Enterprise Debt Financing Vehicles;

To promote the system renovation and product innovation in the inter-bank market;

To build and strengthen the self-regulatory framework and ensure the market order;

To collect, sort and publish relevant market information so as to serve the members and to

provide services for the members;

To serve as a forum for continuing education and training, organize substantive seminars,

workshops, and conferences to enhance practitioners’ business skills and professional level;

To protect the lawful rights and interests of the members, passing issues, suggestions and

requests to competent agencies and legislative bodies.

Responsibilities

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Structure Congress of Members

Council Supervisor

General Council

Secretary

Financial Innovation Promotion Dept. Registration office

Post-registration Supervision & Admin. Market Self-discipline Dept.

Membership & Legal affairs Department Training & Authorization Dept

Research & Development Dept General Administration Dept

Professional Committee Office

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NAFMII and Enterprise Debt Financing

Established registration mechanism for Non-financial Enterprise Debt Financing Vehicle

Essence: Market-oriented Registration Meeting

Emphasize on Information disclosure (issuers), Due Dilligence(underwriters), Assumption of Risk(investor),

and market order

From April 15, 2008 to October 31, 2009, NAFMII approved the registration of Non-financial Enterprise Debt

Financing Vehicles to an amount of more than 1855 billion RMB. The amount of CP & MTN issued reached

1419.93 billion RMB, and 1170.91 billion RMB were still outstanding

Achieved smooth transition of CP management mechanism from filing with PBC to

registration with NAFMII

From April 15, 2008 to October 31, 2009, NAFMII has approved the registration of CP with a total amount of

800.56 billion RMB. By the end of October 2009, the amount of CP being issued reached 1569.61 billion RMB

and 424.81 billion RMB were outstanding.

Established China Bond Insurance Company

In September 2009, China Bond Insurance Company (CBIC) has been established by NAFMII and other

interbank bond market participants. The establishment of CBIC made a big leap in consummating the structure

of China’s interbank market. CBIC will play an important role in easing the financing pressure of the low credit

rating enterprises and in prompting the development of derivatives market. Meanwhile, it also helps to explore

the diversification and sharing mechanism of credit risk.

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Launched new Non-financial Enterprise Debt Financing Vehicles

Medium-term note(MTN)

Launched in April 2008

Medium & Long-term funding channel

Registration amount-1054.9 billion RMB; Outstanding amount-746.1 billion RMB.(By the end of

October 2009)

New types:

MTNs with call options

MTNs with put options

Floating rate MTNs

USD-nominated MTN

Small & Medium Enterprises Collective Note (SMECN)

Launched in November 2009, Medium & Long-term funding channel for SMEs

Standardization in vehicle structures, credit enhancements and registration procedures

On November 23rd, the shelf registration of first batch of SMECN issuance are accepted,

providing a funding of 1.265 billion RMB for 23 SMEs

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System Renovation & Product Innovation

in the future

ABN

Credit risk

management products

RMB bonds issued by

Foreign Institutions

Private Settlement

of Bonds

High Yield Bonds

M & A Notes

New model of

Bond Rating

Evaluation System

for underwriters

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NAFMII has launched the below regulations/guidelines: Instructions on Registration Process for Non-financial Enterprise Debt Financing Vehicles

Rules of Information Disclosure Requirements for Non-financial Enterprise Debt Financing

Vehicles

Rules of Intermediary Services for Non-financial Enterprise Debt Financing Vehicles

Guidance on Prospectus for Non-financial Enterprise Debt Financing Vehicles

Guidelines of Due Diligence for Non-financial Enterprise Debt Financing Vehicles

Guidance of Commercial Papers Issuance for Non-financial Enterprises

Guidance of Medium Term Notes Issuance for Non-financial Enterprises

Guidance of Small & Medium Enterprises Collective Note Issuance for Non-financial Enterprises

Code of Conduct for Underwriting Business Practitioners

NAFMII has been working on the below regulations/guidelines: Guidance on Post-registration Administration for Lead Managers

Guidance on Emergency Management for Non-financial Enterprise Debt Financing Vehicles

Underwriting Agreement

Syndication Agreement

To construct and improve self-regulatory framework of the issuance and

underwriting processes

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NAFMII and Secondary Market Self-regulation

Objectives

To increase market liquidity

To maintain market order

To optimize market mechanism so that promote the market efficiency

Responsibilities

To formulate market self-regulatory rules/guidelines

To promote the system renovation and product innovation

To prepare standard documentations

To maintain good market order

To do secondary market analysis and self-regulation

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In October 2007, NAFMII completed the drafting and launching of China Interbank Market

Derivatives Transaction Master Agreement (2007 Version)

On March 16th, 2009, NAFMII completed the drafting and launching of NAFMII Master

Agreement (2009 Version) ,which consolidated its predecessor, NAFMII Master Agreement (2007

Version) and China Foreign Exchange Market RMB-Foreign Currency Derivative Master

Agreement.

By the end of October 2009, 458 copies of Master Agreements by 73 institutions had been signed and

filed

Currently, NAFMII is working on the drafting/amending of the Repo Master Agreement

To Prepare Standard Legal Documentations

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NAFMII has launched the following regulations/guidelines:

Guidance on Internal Risk Management for Derivative Transactions in Interbank Market

Working Guidelines for Market Makers in Interbank Market

Code of Conduct for Trading Related Business Practitioners in Interbank Market

Self-disciplinary Rules for Bond Trading in Inter-bank Market

Guidance on the Brokerage Business in Interbank Market

To Construct and Improve Self-regulatory Framework of the Trading

Processes

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To draft and publish guidance for brokers/settlement agent

To promote the innovation of credit derivatives with the underlying of Debt Financing Vehicles

To promote the establishment of Interest rate benchmark system

To integrate existing resources to founded the Information service agency for Interbank Market

To create the Monitoring Index and Forewarning System of market risks

To offer and improve termination netting, market quotation and clearing mechanisms for OTC derivatives

To draft and publish Securities Lending Master Agreement

To improve the recognition and enforceability of close-out netting and performance ensuring

arrangements

To improve the legislative foundation of secondary market

To improve the accounting treatment and taxation rules for secondary market transactions

To promote the standardization of interbank market

Working plans for Secondary Market Self-Regulation

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NAFMII is…

Organizer of interbank market development

Explorer of market-oriented reform

Coordinator of the various interests in market

Pioneer of system renovation and product innovation

Summarizer of practical experience in the financial markets

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NAFMII’s Experiences

Service-Assistant to government in policy making ,to market members in business

promotion ,to market development in product innovation and system renovation

Innovation-To solve the problems in market development through the way of innovation

Self-regulation-To maintain a competitive market order

Principles -Keeping in view of the world, the future, the present and all other factors

Mechanism-Assembling power of the market to meet the needs of the market

Objectives-Promoting the development of an OTC market with Chinese characteristics

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Thanks for your attention!