China to introduce more forex derivatives, strengthen supervision

China's foreign exchange regulator said it will increase the number of foreign exchange derivate products available in the market to facilitate export growth and help companies hedge currency risk.

The State Administration of Foreign Exchange (SAFE) said in a statement on its website that it would strengthen supervision of derivatives trading by banks to ensure that the trade helps reduce risks for companies, and expand the variety of tools available, focused on foreign exchange options.

The statement said it would add principal swap transactions for currency swaps and lower the entry threshold for companies and bank branches.

SAFE has been moving to help Chinese firms cope with an increasingly volatile domestic exchange rate after the People's Bank of China (PBOC) set off a steep depreciation in the value of the yuan earlier this year, then followed up by widening the intraday trading band to 2% on either side of the official daily fixed rate.

That depreciation led to significant currency derivative losses by Chinese companies, in particular airlines, many of which had bet heavily on the yuan continuing to appreciate.