China reimposes reserve requirements for some FX options — sources

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SHANGHAI (Aug 6): China's central bank has reimposed reserve requirements on some FX options from Monday, two people with direct knowledge of the development said.

According to the two, new guidelines have been issued that say an additional reserve requirement will be applied to puchases and sales of options contracts that bet on a yuan fall.

The guidelines, part of of China's efforts to stabilise a declining yuan, took effect on Monday, the two people said.

The ratio of the risk reserves for such option business is 10%, compared with a 20% requirement for FX forward dollar sales by banks.

The sources said the ratio for such option business was at the same level as when such a requirement was introduced in October 2015. The measure was scrapped in September 2017, when Beijing was anxious to quash one-way bets on the yuan as outflows had eased and exporters faced strain.

The People's Bank of China has yet to respond to a faxed request for comment on the new guidelines.

On Friday, the PBOC announced that it was setting a reserve requirement ratio of 20% from Monday for financial institutions settling foreign exchange forward dollar sales to clients, effectively raising the cost for investors shorting the yuan.