Why is an automatic price-matching transaction maintained after the introduction of OTC transactions?

OTC approach is a basic practice in the international foreign exchange market and accounts for most of the trading volume in spot transactions globally. For example, OTC transactions in the U.S. made up more than 90 percent of the total foreign exchange trading volume in that country. Given the international nature of foreign exchange transactions and market participants' wide-spread physical presence and diversity, OTC has the advantages of lowering cost and diversifying¹ credit risks. Thanks to its flexibility², OTC transactions have developed rapidly and offered increasingly rich products as they adapt to the diversity of market participants and their varying demands.

When China reformed its foreign exchange management system in 1994, it was not realistic to adopt the OTC approach, given the weak credit basis and regional segregation³ of foreign exchange markets at that time. For the managed floating exchange rate regime based on market supply and demand to function smoothly⁴ and to replace dual⁵ exchange rates with a single exchange rate, the People's Bank of China decided⁶ to set up a centralized, automatic price-matching, inter-bank foreign exchange market. In the past 11 years, this market saw substantial growth, its trading volume reaching US$209 billion in 2004, 3.2 times of the trading volume in 1995. Along with the increase in trading volume and in market participants, demand for transactions and risk management has diversified⁷ day by day, and the introduction of OTC has become an objective necessity, as a way to encourage financial institutions to make full use of the comparative advantages of the OTC and automatic price-matching transactions, and to engage in financial innovation to satisfy the risk management needs of enterprises and households, under the precondition of effective risk control.

On July 21, 2005, the reform of the RMB exchange rate regime was implemented⁹ smoothly. The goal of RMB exchange rate reform is to establish and improve a managed floating exchange rate regime based on market supply and demand and keep the RMB exchange rate basically stable at an adaptive and equilibrium¹⁰ level. Therefore, an important part in improving RMB exchange rate regime is to deepen and broaden the foreign exchange market in line with established practice in international foreign exchange market development, form a multi-layered foreign exchange market system with a variety of transaction modes that fully¹¹ reflects changes in market demand and supply.

In an effort to implement⁸ the reform in a proactive, controllable and gradual way, the People's Bank of China introduced over-the-counter transactions in the inter-bank RMB forward market in August 2005. In the four months since then, the forward market has functioned smoothly. The market has been brisk and trading volume grown larger and larger. In order to further develop the foreign exchange market, improve RMB exchange rate regime and enhance the core competitiveness of financial institutions, the People's Bank of China has decided to introduce OTC transactions as of January 4, 2006.

Considering that small and medium sized financial institutions may find it difficult to acquire credit authorization¹² in the early days of OTC transactions, it is necessary to keep automatic price-matching transactions in the inter-bank spot market.

OTC方式是国际外汇市场上的基本制度。全球即期外汇市场的绝大部分交易量都集中在OTC市场，以美国为例，OTC方式的交易量占全部外汇交易量的比例超过90%。外汇交易的国际性及外汇交易主体的广泛性、差异性决定了OTC方式具有成本低、信用风险分散等优点。OTC方式凭借其灵活性更好地适应了外汇市场主体多元、需求多样的特点，因而取得了迅猛发展，OTC方式的产品也日益丰富。

1994年我国实施外汇管理体制改革，在信用基础薄弱、原有外汇调剂市场区域分割的条件下，直接引入OTC方式还不现实，为顺利实行以市场供求为基础的、有管理的浮动汇率制度，实现人民币汇率并轨，人民银行决定建立集中统一的银行间撮合外汇市场。11年来，银行间撮合外汇市场取得了长足发展， 2004年银行间外汇市场成交量已达2090亿美元，是1995年的3.2倍。随着外汇市场交易量增大、交易主体增多，市场主体的交易和避险需求也日益多样化，客观上要求引入OTC方式，鼓励金融机构在有效控制风险的前提下,充分发挥OTC方式和撮合方式的比较优势，进行金融创新，满足企业和居民的避险需要。

2005年7月21日，完善人民币汇率形成机制改革顺利实施。人民币汇率改革的总体目标是，建立健全以市场供求为基础的、有管理的浮动汇率体制，保持人民币汇率在合理、均衡水平上的基本稳定。因此，遵循国际外汇市场发展规律，拓展外汇市场的广度和深度，形成多种交易方式并存、分层有序的外汇市场体系，充分反映市场供求关系的变化，是完善人民币汇率形成机制的重要环节。

贯彻主动性、可控性和渐进性原则，2005年8月，人民银行在银行间人民币远期市场率先推出了场外交易，4个多月来银行间人民币远期市场运行平稳，交易日趋活跃，交易量不断增大。为进一步发展外汇市场，完善人民币汇率形成机制，提高金融机构核心竞争力，人民银行决定于2006年1月4日引入OTC方式。

考虑到在引入OTC方式的初期，中小金融机构在短期内获取授信存在一定困难，为满足中小金融机构的外汇交易需要，仍有必要保留银行间即期撮合方式