The China Securities Regulatory Commission (CSRC) will prohibit the lending of restricted securities, signaling the officials’ determination to see stabilization in the country’s troubled stock market.
The CSRC stated that from Monday, investors would be prohibited entirely from lending stocks during the lockup periods, while the ‘efficiency of securities lending’ would be kept in check starting March 18.
Furthermore, hedge funds planning to short-sell shares would be required to have 100% of the transaction value in their account from October 30, while other investors must hold at least 80%.
Other conditions imposed on Monday forbid strategic investors and senior management from lending shares. Stricter management of different arbitrage activities has also been barred.
Restricted securities are usually offered to company personnel or investors with specific restrictions on their sale. However, they can be loaned to others for trading purposes, such as short-selling, which can further weigh on markets experiencing a longer-than-expected period of decline.
Supporting China’s Struggling Stock Market
Analysts speculated that the CSRC’s latest move signaled additional support measures aimed at shoring up the mainland’s stock markets will be announced in the coming weeks and months.
Beijing is making every effort to undo a stumble in equities following global funds divesting CN¥89.7 billion ($12.3 billion) of onshore shares through trading connections with Hong Kong in August.
Its suite of policies, including a significant reduction to bank reserves, has allowed the Chinese stock market to climb from a five-year trough in the previous week, although it posted another slide on Friday due to investors’ wariness over the market’s outlook and China’s uncertain economy.
The country’s stock market fell in 2023 and continued its slump in the new year. Shanghai’s CSI300 index, which lost over 6% this year, has recuperated some losses but remains down around 3%.
Whether the new rules and other measures implemented in recent weeks would be sufficient to strengthen the blue-chip index has yet to be known.
Analysts and market players have called for more supportive policies from Beijing to spark a recovery in consumer and business sentiment and regain stability in activity.
The CSRC expects the suspension to provide investors of all types with ‘more time to digest market information’ and form a ‘fairer market order.’
The move would also take strong action on criminal activities that use stock lending to cut holdings and withdraw funds, according to the regulator.
Still, analysts forecast that the policies’ overall stock market impact would be relatively curbed, considering the outstanding short-selling transactions only account for 0.13% of mainland equities in circulation.
