Regulations to prohibit brokerages from borrowing shares-China
As part of additional measures to stop short-selling, China’s securities regulator made an announcement today that will prohibit brokerages from borrowing shares for lending and set a restriction on the size of the so-called securities re-lending business.
Along with outlawing securities lending to investors who sell their equities the same day they buy them, the watchdog promised to take strong action against illicit short-selling arbitrage in China.
As trust in an unsound economy waned last week, the market, opens new tab, fell to five-year lows. In response, Chinese officials have promised a slew of steps to stabilize share prices.
A day earlier, China Securities Regulatory Commission (CSRC) threatened to lose their shirts and rot in jail to anyone who dared to break the law, declaring zero tolerance against dishonest short sellers.
Today, the CSRC announced that securities re-lending—a practice where brokerages borrow shares and lend them to clients for short sales—would not be permitted for new businesses. Current companies would be progressively closed down.
We will stop lending shares and gradually phase out securities re-lending
Mutual fund companies, such as China Asset Management Co, E Fund Management Co, and Southern Asset Management, said
The statement came shortly after CSRC stated that they would no longer lend out shares for short sales. We are requesting brokerages to increase our monitoring of clients’ trading activities.
Although it is against Chinese law to sell shares the same day you buy them, some investors get around the law by using borrowed shares. It is worth noting that such dealers would not be permitted to borrow shares, according to the CSRC.
The securities loan sector has decreased by 24% to 63.7 billion yuan as a result of recent attempts to limit short-selling, according to the CSRC. The regulator also recommended listed companies to increase their worth by merging and acquiring businesses, buying back shares from significant shareholders, and paying dividends on a regular basis.
Depending only on funding from the state does not necessarily solve the fundamental issues that could be the causes of the drawdown. Potential growth in China is being impeded by intricate macro difficulties related to property, leverage, and the banking system.
Kinger Lau, an analyst at Goldman, stated in a research on Monday
