SHANGHAI - Several major Chinese and foreign banks conducted China's first onshore yuan/dollar options on Friday, with the options' volatilities quoted in line with offshore yuan/dollar options, traders said. Bank of China, ICBC and Deutsche Bank were confirmed to have conducted the transactions, with one-year onshore yuan/dollar volatilities quoted at 3.00 to 3.45 percent in early trade in line with offshore forwards, traders said.

"Trading was thin and those banks which traded the options were testing water for a new product in the CFETS," said a dealer at a North American bank in Shanghai, referring to the China Foreign Exchange Trade System, the domestic market.

China announced in February that it would launch yuan options trading on April 1, a market that will help pave the way for a more flexible exchange rate.

The move is Beijing's boldest attempt yet to give firms more hedging tools to cope with steady yuan appreciation as well as uncertainties in global currency rates, but traders expected initial trading would be limited, partly because of various official restrictions to curb risks.

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The foreign exchange regulator said in February that onshore options trading will be restricted to firms and banks using it for hedging purposes rather than for speculation about currency fluctuations, among other restrictions.

Yuan options have been long tradable in the offshore market, primarily in Hong Kong. Within China, firms have been able to use forward contacts to hedge their foreign exchange exposure.

"Many Chinese banks are not familiar with the new products, and they may not rush into trading the new product, but may rather choose to do swaps and forwards for now," said a trader at a European bank in Shanghai.

"In addition, as domestic traders are more conservative in pricing yuan appreciation, onshore options will lag in forecasting yuan volatilities over time. With less speculation, the market's expansion will also be confined."

The launch of the onshore options occurs at a time when China appears to be letting the yuan appreciate against the dollar at a faster pace as it uses the currency as part of its efforts to fight inflation.

The PBOC has fixed a slew of record high mid-points since the start of this year, including one record high on Friday, to guide the currency to trade higher.

Spot yuan hit another all-time trading high at 6.5456 against the dollar in late morning trade on Friday, toppling its historical high of 6.5478 hit on Thursday.