China Starts Yuan Options to Provide More Hedging Tools

China will begin domestic trading of yuan options against other currencies on April 1st.

The move aims to meet market demands of more currency hedging as the yuan becomes more flexible.

The State Administration of Foreign Exchange says it will launch trading of so-called "European-style" yuan options on the interbank market.

In a European-style option, investors can only exercise their rights after the contracts expire.

Also, banks and enterprises will be allowed to buy options at the initial phase, not to sell them, a move, one regulator said, aims to ease foreign exchange trading risks.

Trading will be restricted to firms using it for real trading and investment, rather than speculation. Banks involved in the business should have more than three years of experience in trading foreign-exchange forwards.

Options give the buyer the right, not the obligation, to buy or sell currency at a specified exchange rate during a stated period of time.

Late last month a currency swap business was launched for bank customers another move to help enterprises hedge against exchange rate risks.