• Measures of the People's Bank of China for the Administration of the Automatic Pledge Financing Business
• Document Number：Announcement No. 18 [2017] of the People's Bank of China
• Area of Law： Banking & Finance
• Level of Authority： Departmental Regulatory Documents
• Date issued：12-13-2017
• Effective Date：01-29-2018
• Status： Effective
• Issuing Authority： People's Bank of China

Announcement of the People's Bank of China
(No. 18 [2017])
For the purposes of regulating the automatic pledge financing business, enhancing the payment and clearing efficiency, and preventing payment and clearing risks, the People's Bank of China (“PBC”) has developed the Measures of the People's Bank of China for the Administration of the Automatic Pledge Financing Business, which are hereby issued and shall come into force on January 29, 2018. The Interim Measures of the People's Bank of China for the Administration of the Automatic Pledge Financing Business (Announcement No. 25 [2005], PBC) shall be repealed concurrently.
People's Bank of China
December 13, 2017
Measures of the People's Bank of China for the Administration of the Automatic Pledge Financing Business
Article 1 For the purposes of regulating the automatic pledge financing business, enhancing the payment and clearing efficiency, and preventing payment and clearing risks, these Measures are developed in accordance with the Law of the People's Republic of China on the People's Bank of China and other relevant laws and regulations.
Article 2 For the purposes of these Measures, “automatic pledge financing business” means the activity in which a member institution pledges its bonds and borrows funds from the PBC through the automatic pledge financing system when its daytime position of the clearing account is insufficient for clearing, and the pledge of bonds will be automatically released when the funds are repaid.
Article 3 For the purposes of these Measures, “member institutions” means the deposit taking corporate financial institutions that are legally formed within the territory of the People's Republic of China and handle the automatic pledge financing business, and other corporate financial institutions recognized by the PBC.
Article 4 For the purposes of these Measures, the “automatic pledge financing business system” means the application system which handles the automatic pledge, financing, repayment, and automatic release of pledge of bonds of member institutions.
Article 5 For the purposes of these Measures, “pledged bonds” includes book-entry treasury bonds, central bank bills, development and policy bank financial bonds, as well as local government bonds and other negotiable securities recognized by the PBC.
Article 6 A corporate financial institution that applies for being a member institution shall meet the following conditions:
(1) It is a direct participant of the High Value Payment System.
(2) It is a Class A or B clearing member in the interbank market.
(3) It has opened a bond custody account at the bond registration, custody and settlement institution designated by the PBC (hereinafter referred to as the “bond registration, custody and settlement institution”).
(4) It meets other conditions prescribed by the PBC.
Article 7 A corporate financial institution that applies to the PBC for handling the automatic pledge financing business shall submit the following materials:
(1) A written application for handling the automatic pledge financing business.
(2) The license for engaging in the financial business and the letter of confirmation on opening an account by the bond registration, custody and settlement institution (photocopies).
(3) The amount of paid-in capital at the end of the last year (excluding supplementary capital, here and below).
(4) Other materials as required by the PBC.
Article 8 An application of a national bank for handling the automatic pledge financing business shall be accepted by the PBC Head Office, and the application of any other corporate financial institution for handling the automatic pledge financing business shall be filed with the PBC branch office at the place where the institution is located, and shall be accepted by the PBC Head Office after the preliminary examination of the PBC branch office.
For the purposes of these Measures, “PBC branch offices” include the PBC Shanghai Head Office, all branches and business management departments of the PBC, all central sub-branches of the PBC in capital cities of provinces (autonomous regions) and the central sub-branch of the PBC in Shenzhen.
Article 9 A financial institution that meets the conditions for handling the automatic pledge financing business upon the acceptance of the PBC shall sign the Master Agreement on Automatic Pledge Financing with the PBC.
Article 10 The balance of automatic pledge financing of the China Development Bank, policy banks, state-owned commercial banks, and Postal Savings Bank of China shall not exceed 4% of their paid-in capital at the end of the last year. The balance of automatic pledge financing of national joint stock commercial banks shall not exceed 10% of their paid-in capital at the end of the last year. The balance of automatic pledge financing of other financial institutions shall not exceed 15% of their paid-in capital at the end of the last year. The PBC may adjust the aforesaid proportions according to the requirements for macro prudential management, and adjust the upper limit of the balance of automatic pledge financing according to the credit status of member institutions and liquidity management.
Article 11 Member institutions shall pledge bonds in full amount when conducting the automatic pledge financing business. The PBC shall, according to the requirements for macro prudential management and market conditions, determine and adjust the scope of pledged bonds, the pledge ratio and other factors, and notify member institutions.
Article 12 Member institutions shall generally repay funds borrowed in the automatic pledge financing business on the same day, and the maximum term shall not be longer than overnight. If the principal and interest on funds are not fully repaid on the day, the member institution shall, according to the business acceptance scope prescribed in Article 8 of these Measures, explain the situation to the PBC Head Office or the local PBC branch office.
Article 13 The daytime and overnight automatic pledge financing interest rate shall be determined according to the interest rate of the PBC overnight standing lending facility (SLF) at the time of occurrence of the business.
Article 14 The daytime automatic pledge financing interest shall be calculated by hours on the basis of the actual financing amount and time, and the time shall be deemed as one hour if it is less than one hour. The interest calculation formula is: Daytime automatic pledge financing interest = (financing amount × financing time × financing interest rate)/(360 × 24)
Article 15 The overnight automatic pledge financing interest rate shall be calculated on a daily basis. The calculation formula is: Overnight automatic pledge financing interest rate = (financing amount × the number of actual days of fund use × financing interest rate)/360
Article 16 In automatic pledge financing, funds shall be borrowed and repaid based on each transaction, and the member institution shall pay off the principal with interest at the repayment time, and if the fund is insufficient at the current repayment time and the repayment is postponed, recalculate the interest and repay the principal with interest at the next repayment time.
The repayment time in the automatic pledge financing business shall be set by the PBC in the automatic pledge financing business system, and be notified to member institutions.
Article 17 Where the principal and interest on the automatic pledge financing funds are not paid off overnight, it shall be deemed as overdue, and the PBC shall collect the interest on the funds overdue on a daily basis at a rate raised by 3%.
Article 18 Where the accrued principal and interest on automatic pledge financing fail to be repaid in full amount within three days after the expiration, it shall be deemed as a breach of contract, and the PBC shall handle it according to market conventions and relevant laws and regulations.
Article 19 The monetary unit of the automatic pledge financing business shall be ten thousand yuan, and the amounts shall be rounded to two decimal places. The minimum amount of a single financing shall be 500,000 yuan.
Article 20 A bond registration, custody and settlement institution shall, upon the authorization of the PBC, provide services for member institutions to handle the automatic pledge financing business in accordance with these Measures and the relevant business rules, and maintain and guarantee the normal operation of the automatic pledge financing business system.
The bond registration, custody and settlement institution shall, in accordance with these Measures, develop detailed rules for the operation of the automatic pledge financing business and emergency plans.
Article 21 Where a member institution breaches the contract, or the bond registration, custody and settlement institution fails to fully perform its duties, which results in delay or interruption in such links as pledge, financing, repayment and release of pledge, and thus causes loss to any relevant party, the violators shall assume corresponding liability respectively.
Article 22 Where a member institution breaches the contract, or may affect fund security of the PBC if it continues to handle the business, the PBC may suspend the automatic pledge financing business of the institution.
Article 23 Where the automatic pledge financing system cannot operate normally due to force majeure, and such links as pledge, financing, payment and release of pledge is thus delayed or suspended, the relevant parties shall be obliged to eliminate the obstacle and take remedial measures in a timely manner, but shall not assume the liability for compensation.
Article 24 These Measures shall be subject to interpretation by the PBC.
Article 25 These Measures shall come into force on January 29, 2018. The Interim Measures of the People's Bank of China for the Administration of the Automatic Pledge Financing Business (Announcement No. 25 [2005], PBC) shall be repealed concurrently.