China’s State Administration of Foreign Exchange, or Safe, has announced that onshore CNY option trading will be allowed from April 1.
Only vanilla European-style options (those with exercise permitted only on the expiry date) will be allowed; the option cut will be 3pm Beijing time and trading hours 9.30am to 4.30pm, the same as the onshore spot FX market.
Chinese companies will only be able to buy options and only for hedging – not speculative – purposes (although previously purchased options may be sold if the hedge is no longer required.) Furthermore, in an edict that appears at first glance to be a denial of the existence of put/call parity, Safe has ruled that companies may only purchase (USD) call options and not puts.
Banks that are qualified to trade in the onshore market will need to apply for separate licences to trade with other banks and with corporate clients.
Delta exposure will of course be included in banks’ net currency positions and these will need to continue to comply with the net-long-US-dollar-position policy required by Safe.