Source: Broker China Author: Yun Zhonglan

　　Recently, for the over-the-counter options business, the China Securities Regulatory Commission rarely issued three consecutive fines, and three leading brokerages, CICC, Huatai and China Securities, were named.

　　After investigation, it was found that the stock index-linked subject of one over-the-counter option contract of CITIC Construction Investment Securities exceeded the specified range.

Some of Huatai Securities’ over-the-counter options contracts are linked to individual stocks beyond the specified scope; no written compliance opinions have been issued for some over-the-counter options contracts with a duration of less than 30 days; Derivatives access management as required.

The counterparty to one OTC option contract of CICC is a non-professional institutional investor.

　　In the past two years, OTC options have developed rapidly, and as of January this year, the nominal principal has exceeded one trillion yuan.

At present, 8 securities firms are primary dealers of OTC options, and 38 are secondary dealers.

　　According to the previous data of the China Securities Association, the five largest newly added securities firms in OTC options have a market share of over 60% in general, and a maximum of over 80%.

3 leading brokerages were issued warning letters

　　After investigation, the China Securities Regulatory Commission found that the index-linked subject of an OTC option contract of CITIC Construction Investment Securities exceeded the specified scope, violating Article 17 of the "Administrative Measures for the OTC Option Business of Securities Companies".

　　A Chinese reporter from a brokerage firm noted that Article 17 of the relevant articles stipulates that "the scope of individual stock targets for securities companies to carry out over-the-counter options business shall not exceed the current list of margin financing and securities lending targets, and the stock index targets shall not exceed the scope stipulated by the Securities Industry Association."

　　The China Securities Regulatory Commission believes that the above-mentioned problems reflect that CSC's compliance management is not in place.

In accordance with the provisions of Articles 3 and 32 of the "Measures for the Compliance Management of Securities Companies and Securities Investment Fund Management Companies", it is decided to take administrative supervision and management measures of issuing a warning letter to China Securities Co., Ltd.

　　Huatai Securities’ over-the-counter options business also received a fine.

After investigation, the China Securities Regulatory Commission found that Huatai Securities had the following problems: First, some of the over-the-counter options contracts linked to individual stocks exceeded the scope of current margin financing and securities lending, violating Article 17 of the "Administrative Measures for the Over-the-Counter Option Business of Securities Companies"; second, Failure to issue written compliance opinions for some OTC options contracts with a term of less than 30 days violated Article 20 of the "Administrative Measures for the OTC Options Business of Securities Companies"; The internal process is not standardized, and the access management of derivatives is not carried out as required.

　　Also receiving the fine is CICC.

After investigation, the China Securities Regulatory Commission found that the counterparty to one of CICC's OTC options contracts was a non-professional institutional investor, which violated Article 24 of the "Administrative Measures for Securities Companies' OTC Option Business".

　　The CSRC believes that the above-mentioned problems reflect that CICC's compliance management is not in place.

According to the provisions of Articles 3 and 32 of the Measures for the Compliance Management of Securities Companies and Securities Investment Fund Management Companies, it is decided to take administrative supervision and management measures of issuing a warning letter to CICC.

　　The so-called over-the-counter options business refers to options transactions carried out over the counters of securities companies.

The supervision implements hierarchical management of securities firms' participation in OTC options transactions, and divides them into primary dealers and secondary dealers according to each company's capital strength, classification results, overall risk management level, professionals and technical systems.

　　It is understood that the CICC, Huatai Securities and China Securities that were punished this time are all primary dealers in over-the-counter options.

According to the regulations, primary dealers can open a special account for hedging transactions of individual stocks on the Shanghai and Shenzhen Stock Exchanges and directly carry out hedging transactions; secondary dealers can only conduct individual stock hedging transactions on the exchange with primary dealers, and are not allowed to do so on their own or with a single dealer. Counterparties other than senior dealers carry out on-exchange individual stock hedging transactions.

The top 5 securities companies have the highest market share of over 80%

　　It is understood that primary dealers have higher requirements for securities firms' capital strength and risk control capabilities. Currently, only 8 securities firms have obtained the qualification of primary dealers.

In addition to the above-mentioned three brokerage firms, there are also 5 CITIC Securities, GF Securities, Guotai Junan, China Merchants Securities and Shenwan Hongyuan.

Secondary dealers currently have 38 brokerages.

　　The Chinese reporter from the brokerage company noticed that before that, the China Securities Association has also been announcing the market concentration of the top five securities companies in the nominal principal of new OTC options.

The indicator has not been published since the end of last year.

According to previously released data, the market concentration of the top 5 newly-added securities firms exceeded 60%, and at the peak it exceeded 80%.

　　For a long time before, the growth of OTC options scale was relatively slow, and it began to grow rapidly in the past two years.

In April 2020, the nominal principal of over-the-counter options exceeded 500 billion yuan; in December 2021, the scale exceeded 1 trillion yuan.

　　According to the OTC Derivatives Report (latest) released by the China Securities Association in January 2022, as of the end of January this year, the nominal principal of OTC options at the end of the period was 1,091.717 billion yuan, and the number of transactions was 22,324.

Among the types of ongoing trading business, the nominal principal of stock index OTC options was 614.9 billion yuan, accounting for 56.32%; commodity OTC options accounted for 8.21%; individual stock OTC options accounted for 10.19%; than 25.28%.

From the perspective of proportion, the OTC options business is currently dominated by stock index OTC options.

　　Judging from the counterparties (nominal amount) of newly added OTC options contracts in January, commercial banks accounted for 58.5%, securities companies and subsidiaries accounted for 15.13%, and private equity funds accounted for 14.87%.

　　In its 2021 annual report, CITIC Construction Investment Securities introduced that its derivatives trading business is remarkable, and the new scale of over-the-counter options business and income swap business has increased significantly.

Steadily promote the over-the-counter derivatives business such as over-the-counter options and income swaps, and actively explore new types of linked targets and income structures to meet the individual investment needs of customers.

The company's OTC options business in 2021 will increase by 343.447 billion yuan, a year-on-year increase of 39.34%; the income swap business will increase by 102.961 billion yuan, a year-on-year increase of 150.83%.

　　As of the end of 2021, Huatai Securities’ OTC ​​options business had 1,753 existing contracts, with an existing scale of 122.163 billion yuan (regulatory report data caliber).

In 2020, the stock of Huatai Securities' OTC options trading business was 672, and the stock nominal principal was 36.245 billion yuan.

In contrast, Huatai Securities' OTC options business in 2021 will develop rapidly in terms of quantity and scale.