The State Administration of Foreign Exchange (SAFE) announced in June this year that they wanted to “promote the development” of the over-the-counter market in China.

Already a handful of companies have completed options trades using Deutsche Bank, DBS and Standard Chartered.

The main features of the new SAFE regulations are:

• banks are only allowed to trade renminbi/foreign exchange derivatives with domestic entities or domestic individuals that have FX exposures for hedging purposes
• banks may offer put options, call options or combination options to clients on the basis of common European options
• terms of the derivative trades are subject to negotiation between corporates and their banks
• banks must obtain from SAFE a licence for foreign exchange spot purchase/sales business and prove that they have a “sound derivatives trading systems” and satisfy the qualifications for the financial derivatives products trading business from the China Banking Regulatory Commission
• banks are not allowed to hold customer trading trading records and documents for more than five years
• banks and domestic entities must comply with the foreign exchange rules for entering into derivatives transactions in the non-China market.