CHINA has halted its loosely-regulated and fast-growing over-the-counter (OTC) options market in the government’s latest effort to reduce risk in the financial system, according to sources at brokerage firms.

The Securities Association of China has ordered suspension of the derivative business, effective yesterday, two sources who had received the notice from the association said. No new option contracts will be allowed, while existing ones will be discontinued upon expiration.

It was not clear when the business will be resumed. The association declined to comment.

Demand for stock options — a risk-hedging tool that gives investors the right to buy or sell a security at a specified price on a specific date — has surged amid rising volatility in the stock market.

Trading turnover of OTC options jumped 44.2 percent last year to 501.1 billion yuan (US$79.85 billion), according to Hwabao Securities, while options traded on the Shanghai Stock Exchange have also witnessed rapid growth recently.

The suspension comes after signs that options in the OTC market, which change hands among institutions including commercial banks, private funds and brokerages, have been sold to retail investors in some cases, according to the sources.

The move echoes other measures regulators have taken recently to eliminate risks, as the government makes financial stability a key priority this year. (SD-Agencies)