In order to further promote the development of the domestic and international options market and to satisfy the requirements of economic entities to hedge against exchange-rate risks, the State Administration of Foreign Exchange recently issued the Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning the Banks’ Handling of Renminbi-Against-Forex Options Portfolio Business (Hui Fa No. 43 [2011], hereinafter referred to as the “Circular”). The Circular will come into effect as of December 1, 2011.

The main contents of the Circular include: First, introducing the foreign exchange put and risk-reversal options portfolio business and the foreign exchange call and risk- reversal options portfolio business; Second, providing that banks will comply with the regulatory requirements such as trading on the basis of actual needs and integral management when handling the options portfolio business for their clients; Third, allowing banks that qualify for Renminbi-against-Forex options trading on the inter-bank foreign exchange market and that qualify to operate the Renminbi-against-Forex options business for clients to directly engage in the options portfolio business for their clients.

The issuance of the Circular is beneficial to improve instruments for enterprises to avoid exchange-rate risks, to improve the banks’ means of risk management, to continuously promote the development of the domestic foreign exchange market, and to give full play to the market’s basic role in the allocation of resources.