YICAI｜Chinese Stocks Rise After CSRC Tightens Rules for Short Sellers

(Yicai) July 11 -- China's major stock indexes gained after the main securities regulator announced stricter requirements for short sellers.

The Shanghai Composite Index [SHA: 000001] ended 1.1 percent elevated at 2,970.39 while the Shenzhen Component Index [SHE: 399001] closed 2 percent higher at 8,870.36. The ChiNext Index [SHE: 399006] moved up 2.1 percent to 1,685.12.

Investors' collateral ratio for securities lending will be raised to 100 percent from 80 percent on July 22, the China Securities Regulatory Commission announced yesterday. For private equity, the ratio will be hiked to 120 percent from 100 percent, it added.

Securities lending enables short sellers to speculate on stock price changes by borrowing securities from brokerages for a predetermined period for a fee, selling the stock on the open market, and expecting to buy it back cheaper to make a profit before returning it to the brokerage.

Moreover, the CSRC said that China Securities Finance, a state-owned financial services company, suspended its relending business yesterday. CSF had been lending stocks to brokerages for further use in their lending businesses since 2011.

The tightening rules are aimed at keeping the stock markets steadier. The three major mainland stock indexes all logged declines last month. The SCI fell 3.9 percent in June, the SZI dropped 5.5 percent, and the ChiNext Index slumped 6.7 percent.

The measures indicate that regulators are resolute in keeping the markets stable and protecting investors' rights and interests, Liu Jiawei, chief analyst for non-banking business at Dongxing Securities, said to Yicai. This should help boost investor confidence with an expected reduction in stock market fluctuations, Liu added.

The CSRC has reigned in short selling since last August. As of June 30, the scale of securities lending fell 64 percent, making up about 0.1 percent of all market caps of mainland-listed shares, which reduced the impact, the watchdog said. Moreover, the scale of securities relending business plunged 75 percent, it added.

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