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China’s securities regulator has moved to tighten the rules for securities companies involved in the participation in over-the-counter (OTC) options, The Paper reported.

According to the new rule published on Wednesday, securities companies carrying out over-the-counter options are divided into primary dealers and secondary dealers.

Securities companies with a class AA rating or above and recognized by the China Securities Regulatory Commission, can become a primary dealer. While those with a class A rating or above, and registered in the Securities Association of China, will be counted as a secondary dealer.

Primary dealers can open special accounts for hedging transactions in the Shanghai and Shenzhen stock exchanges and directly carry out hedging transactions.

However, secondary dealers can only conduct individual stock hedging transactions with primary dealers, and must not conduct hedging transactions on the floor with their counter-parties other than primary dealers.

The new rule takes immediate effect without a buffer period. It means if securities companies do not meet the filing conditions or fail to become a dealer, they will be directly called to stop their OTC options business.

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