China will begin the domestic trading of yuan options against other currencies beginning April 1 in an effort to meet market demands of more currency hedging tools as the yuan becomes more flexible.

The State Administration of Foreign Exchange (SAFE) said in a circular on its website Wednesday that it will launch trading of so-called "European-style" yuan options on the interbank market.

Also, banks and enterprises will be allowed to buy call options at the initial phase, not to sell them, a move, the regulator said, that aims to ease foreign exchange trading risks.

It also said the trading will be restricted to firms using it for real trading and investment, rather than speculation. Banks involved in the business should have more than three years of experience in trading foreign-exchange forwards.

Options give the buyer the right, not the obligation, to buy or sell currency at a specified exchange rate during a stated period of time.

"As China's yuan exchange rate is becoming more flexible, enterprises' and banks' demands for hedging tools are on the rise, which pushes forward the development of the foreign exchange derivative market", the SAFE said.

The domestic foreign exchange market contains the fundamental features for the launch of the business, it added.

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