Core Viewpoint - The recent collapse of Shenzhen Shenshang Zhonghui Holdings Co., Ltd., the largest off-exchange options channel business, has exposed the underlying issues and risks associated with the off-exchange options market in China [1][3]. Group 1: Company Overview - Shenzhen Shenshang Zhonghui is a wholly-owned subsidiary of Shenzhen Pingbang Fund Management Co., Ltd., with a reported monthly trading volume of nearly 5 billion yuan [5][6]. - The company was involved in various financial services, including overseas immigration, distressed assets, individual stock options, and market value management [6][7]. - The company had recently opened a new branch in Luohu, Shenzhen, just months before its collapse [8]. Group 2: Incident Details - Employees reported that the company's management had disappeared, leaving many investors unable to exercise their options, with losses potentially reaching millions [2][10]. - The company had stopped processing orders about a week before the incident, leading to significant unfulfilled transactions [13][27]. - The company had outstanding debts, including unpaid management fees and rent, indicating financial distress prior to the incident [12][10]. Group 3: Industry Context - The off-exchange options market in Shenzhen is characterized by a large number of companies, with estimates suggesting there are over a thousand such firms involved, handling potentially trillions of yuan [4][37]. - The off-exchange options business has a high entry barrier, requiring companies to meet specific financial qualifications, yet many firms are circumventing these regulations [22][39]. - The allure of high leverage (up to 20 times) has attracted many retail investors, despite the inherent risks associated with such investments [25][20]. Group 4: Regulatory and Market Implications - The incident has raised concerns about the regulatory environment surrounding off-exchange options, with many companies operating in a gray area of legality [36][46]. - There is a growing recognition that the off-exchange options market poses systemic risks, particularly as many companies engage in practices that could be classified as illegal fundraising [52][51]. - The need for enhanced investor education and stricter regulatory oversight has been emphasized, as the market continues to evolve and attract more participants [52][50].

Core Insights - The article discusses the significant growth of the off-exchange derivatives trading business by risk management subsidiaries of futures companies in China, which has increased by 8.8% since the beginning of 2025, driven by the need for customized risk management solutions for real enterprises facing external shocks and market volatility [1][2]. Group 1: Market Trends - As of April 18, 2025, the nominal principal of commodity off-exchange derivatives held by risk management subsidiaries reached 228.03 billion yuan, reflecting an increase of 18.53 billion yuan since January 20, 2025, when Trump took office, marking an approximate growth of 8.8% [2]. - The demand for hedging has surged due to intensified market fluctuations caused by trade policies, with some companies reporting a 40% increase in their off-exchange derivatives positions in April 2025 [2][5]. Group 2: Client Demographics - The primary clientele for these off-exchange derivatives are real enterprises, with over 95% being private small and medium-sized enterprises (SMEs), which often struggle with the standardized nature of traditional futures contracts [2][3]. - Customized derivatives can address the specific needs of SMEs, providing tailored solutions for price fluctuations and exchange rate risks [2][4]. Group 3: Risk Management Solutions - Off-exchange derivatives have proven effective for SMEs, allowing them to manage risks without the high capital requirements and expertise typically needed for direct participation in futures markets [4][6]. - Examples include a petrochemical company using vanilla options to secure higher selling prices and a private steel mill locking in future prices to avoid rising procurement costs [3][5]. Group 4: Future Outlook - The market for off-exchange derivatives is expected to continue expanding, driven by the increasing complexity of the macroeconomic environment and the need for effective risk management strategies among enterprises [6]. - The unique advantages of off-exchange derivatives, such as preemptive risk control, position them as essential tools for enterprises aiming to enhance their competitiveness and navigate global market uncertainties [6].