Saturday 23 June 2018

China cracks down on short selling in effort to calm stock market

An investor holds onto prayer beads as he watches a board showing stock prices at a brokerage office in Beijing. Photo: Reuters
An investor holds onto prayer beads as he watches a board showing stock prices at a brokerage office in Beijing. Photo: Reuters

Nathaniel Taplin and Saikat Chatterjee

China stepped up its crackdown on short-selling of shares on Tuesday, unveiling rules that make it harder for speculators to profit from hourly price changes, as some of the nation's major brokerages suspended their short-selling businesses.

China's stock exchanges and market watchdogs are cracking down on short-selling as part of a broad government-orchestrated effort to prevent a collapse in the country's markets, which have lost about 30 percent of their value since peaking in June.

The sell-off, which followed a dizzying rally, has shattered investor confidence in Chinese stocks and shaken the faith of some foreign investors in the ability of the ruling Communist Party to maintain stability of the financial system.

The Shanghai and Shenzhen exchanges said in separate statements on Monday night that new rules, effective immediately, banned traders from borrowing and repaying stocks on the same day - a step that raises risks for short-sellers.

On Tuesday, as the markets regained ground, major brokerages Citic Securities and Huatai Securities said they would temporarily halt their short-selling services. They were joined by smaller rival Great Wall Securities.

"In order to comply with urgent changes in exchange rules and control business risks, as of today we are temporarily halting our short selling business," Citic said.

The CSI300 index of blue chip Shanghai and Shenzhen stocks rose 1.2 percent at the end of the morning session. The Shanghai Composite Index .SSEC gained 1.3 percent to 3,671.49 points - still well off the 4,500 target set by Beijing as its benchmark for a return of market confidence.

The China Securities Regulatory Commission  has declared war on "malicious" short-sellers and is also scrutinizing the use of automated trading strategies favored by hedge funds to profit from market volatility.

On Monday, it froze a trading account linked to Citadel Securities, a unit of the U.S. group that also owns hedge fund Citadel LLC - the first time in the crackdown that a foreign firm confirmed one of its Chinese accounts had been suspended.

China's state margin-lending agency, tasked with stabilizing the stock market, has injected 200 billion yuan ($32.21 billion) since July into five newly launched mutual funds, the official China Securities Journal said on Tuesday.

The China Securities Finance Corp is also managing a 120 billion yuan bailout fund formed by 21 brokerages, and last month provided 260 billion yuan in credit lines to brokerages to help them buy stocks via proprietary trading.


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