China's first onshore yuan options quoted in line with offshore

Several major Chinese and foreign banks traded China's first onshore yuan/dollar options on Friday, with the options' volatilities quoted in line with offshore yuan/dollar options, traders said. Bank of China, ICBC and Deutsche Bank were confirmed to have conducted the transactions, with one-year onshore yuan/dollar volatilities quoted at 3.30 percent bid in late trade in line with offshore forwards, traders said.
"To us the important breakthrough today is just having this whole concept of having a volatility market and along with it the new suite of hedging products," said Beng Hong Lee, head of FX trading for China at Deutsche Bank in Shanghai.
China announced in February that it would launch yuan options trading on April 1, a market that will help pave the way for a more flexible exchange rate.
The move is Beijing's boldest attempt yet to give firms more hedging tools to cope with steady yuan appreciation as well as uncertainties in global currency rates, but traders expected initial trading would be limited, partly because of various official restrictions to curb risks. "Trading was thin and those banks which traded the options were testing water for a new product in the CFETS," said a dealer at a North American bank in Shanghai, referring to the China Foreign Exchange Trade System, the domestic market.
The foreign exchange regulator said in February that onshore options trading will be restricted to firms and banks using it for hedging purposes rather than for speculation about currency fluctuations, among other restrictions. Traders expect that initial customers will be corporate clients, limited to call and put options, but more products could come later if authorities take steps to further expand the market.