China targets margin loans, short selling to help stabilise stocks

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Written By Pinang Driod

© Reuters. FILE PHOTO: An electronic board shows Hang Seng stock index, at the Lujiazui financial district, following the coronavirus disease (COVID-19) outbreak, in Shanghai, China October 25, 2022. REUTERS/Aly Song

BEIJING (Reuters) – China’s securities regulator said on Monday that it would tighten scrutiny of margin financing, malicious short selling and seek to ward off risks involving pledged shares.

The watchdog’s vow to stabilise the market comes amid growing concerns that slumping share prices could trigger more selling in a vicious spiral.

The China Securities Regulatory Commission (CSRC) said it would guide brokerages to give investors more time to answer margin calls, so as to ease downward market pressure.

Margin calls require investors to top up collateral for their borrowings, or unwind their leveraged bets.

So far, risks are manageable – forced selling totalled roughly 900 million yuan ($125.03 million) in January – and the watchdog will ensure stable operations of the country’s 1.6 trillion margin financing business, the CSRC said.

In a separate statement, the CSRC said it would spur its crackdown on illegal activities that profit from recent market volatility.

“Market manipulation and malicious shorting seriously erode people’s wealth, and stand on the opposite camp of individual investors,” the CSRC said.

The CSRC vowed “zero tolerance” against ill-intended short sellers, saying those who dare flaunt the law will “lose their shirts and rot in jail”.

Regarding worries about major shareholders in China-listed companies who had borrowed against their holdings also facing margin calls, the CSRC said risks were under control.

So far this year, company shareholders have been forced to liquidate pledged shares worth just 27.4 million yuan, which is tiny, the CSRC said.

Although more than 100 major shareholders have supplemented their collateral this year, such activities won’t lead to involuntary selling of shares, the watchdog said.

“We will closely monitor the situation and take forceful measures to prevent risks involving pledged shares,” the CSRC said.

($1 = 7.1982 renminbi)

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