SHANGHAI (REUTERS) - China's biggest over-the-counter (OTC) equity exchange has suspended listings by certain kinds of financial firms, people told Reuters, its latest restriction aimed at reducing market risks in the fast-growing alternative listing venue.

The three sources said they had received notices from the exchange telling them of the new policy on listings on China's New Third Board, including a source in a company that had been planning to list.

The latest ban includes a halt on listings of certain kinds of financial firms, such as peer-to-peer lending companies and pawnshops. The suspension would not include traditional financial firms such as banks, trust firms and brokerages.

"We've just received notice to suspend listings of all financial firms, regardless of which stage they're at," an underwriter, who declined to be named, told Reuters late on Tuesday.

The operator of New Third Board declined to comment.

The Beijing-based exchange was set up three years ago by the government with the mandate of funding China's small companies who could not access China's stock market.

The OTC board has expanded rapidly on government support, with the number of companies traded there surging to 5,499, almost double the number of Chinese firms listed on the stock exchanges.

However, trading on the exchange has been extremely volatile, with the New Third Board index doubling in the first four months of 2015, before slumping 40 per cent in the following three months. The recent volatility has prompted regulators to step up supervision.

The latest measures come less than a month after the New Third Board suspended listings by private equity firms, signaling an expansion of restrictions on financial firms'fundraising on the board.

Analysts said that fundraising by newly-barred financial institutions on the New Third Board has been huge, squeezing out funding by other types of companies, and raising concerns that their proceeds are not being used properly.

Private equity firms including China Science & Merchants Investment Management Group and Beijing Tongchuang Jiuding Investment Management Co have been raising tens of billions of yuan in the OTC market.

Their rival CITIC Capital has also said that it plans to list a subsidiary on the New Third Board to build an exclusive platform for its yuan-denominated private equity business.