China's Securities Regulator Makes Move to Curb Short-Selling Amid Market Volatility
Summary:
China's securities regulator, the China Securities Regulatory Commission (CSRC), has decided to curb short-selling activities due to volatile market conditions by suspending the lending of restricted shares. This move, effective from January 29, aims to increase fairness and rationality in the market, allowing investors more time to process market information. Amid these changes, China is actively investing in experimental projects involving its central bank digital currency, despite facing significant challenges in the stock market.
In response to the volatility in the stock market, China's securities regulator has made another move to curb short-selling activities. The China Securities Regulatory Commission (CSRC) stated on its WeChat account that it will enact a suspension on lending restricted shares from January 29 onward. These particular shares come with specific conditions regarding their sale and transfer, often implemented for reasons such as company governance policies or as a component of an employee compensation package. Even though these shares' sale is limited, they can be lent to traders participating in derivatives contracts, which includes short-selling.
The intention behind this new regulation, as per the CSRC, is to emphasize fairness and rationality, decrease the functionality of securities lending, and check institutions' advantages regarding information and tool utilization. The aim is to provide all investors ample time to process market information and create a more equitable market order. China has been considering methods to limit capital outflows.
Previously, the nation's top brokerage discontinued lending stocks to retail investors while increasing institutional investors' margin requirements on January 22, due to guidance from regulatory bodies, as reported by Bloomberg.
The performance of the Shanghai Stock Exchange Composite Index over the past year was also made available by Google Finance. Furthermore, another measure was taken in October when the local commission revealed new regulations for hedge funds. It placed limitations on lending restricted shares by strategic investors and stepped up monitoring of arbitrage activities. In financial terms, short-selling is a method where an investor borrows shares of a stock to sell them in the market in the expectation that the stock's price will decrease. This tactic is employed by investors who reckon a stock is overpriced or predicted to go down.
China's stock market has undergone considerable difficulties in the past year. The CSI 300 Index benchmark went down by 11% in 2023, while the MSCI China Index has already dropped nearly 10% this year, following losses of 23.6% in 2022 and 22.8% in 2021.
In addition, data from the South China Morning Post shows that foreign investors’ confidence in China's market has significantly dwindled. Investors from outside China offloaded more than 170 billion yuan (US$23.4 billion) worth of mainland stocks between July and November of the previous year. Despite the trials in the market, China is investing considerably in experimental projects related to its central bank digital currency (CBDC), or digital yuan. Some of the potential applications of this technology include collaborations with many foreign banks and the use of the digital yuan for settling commodities transactions on Shanghai exchanges.
Published At
1/28/2024 7:33:03 PM
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