CSRC revives bid for margin lending and short selling

PUBLISHED : Thursday, 25 September, 2008, 12:00am
UPDATED : Thursday, 25 September, 2008, 12:00am

Measures aimed at boosting market

The mainland securities regulator is fast-tracking preparations for margin lending and short selling in a new attempt to boost the country's flagging stock market.

The Shanghai and Shenzhen exchanges have been asked to file detailed plans for the new products, according to two sources.

That could pave the way for the launch of the market-moving measures in the near future.

The China Securities Regulatory Commission put the plan on hold in May to avoid turbulence ahead of the Beijing Olympics.

The Shanghai Composite Index has bounced up nearly 17 per cent since last Thursday, buttressed by a package of incentives including the cancellation of stamp duty on stock purchases and increasing buying of shares by a government investment arm.

'The launch of the measures at this juncture will probably create an easy exit for investors as they seek to take profit,' said Citic Securities analyst Sun Chao. 'It's not easy to say there will be a turnaround even if margin lending materialises.'

Margin trading allows investors to borrow money from brokers to buy shares, while short selling lets investors borrow shares from brokerages to sell them.

Sources said there was no clear timetable for the launch and Beijing planned to set up an intermediary company to conduct the transactions, rather than let individual brokerages do the business.

The market was rife with speculation in April that the CSRC would roll out the financial tools to bail out the bear market.

But sources told the South China Morning Post at the time that the measures would not hit the market until the close of the Olympic Games as the State Council had given priority to financial stability.

The Shanghai benchmark index had fallen nearly 70 per cent from its peak on October 16, 2007 until it rebounded on the government's rescue package last week. Yesterday, the gauge inched up 15.301 points or 0.7 per cent to close at 2,216.811 as last-minute buying helped it recover from early losses of as much as 3.8 per cent.

The buying euphoria was attributed to speculation that the securities regulator would soon select the first brokerages to start margin lending on a trial basis.

'It seems the market bought the rumours,' said Orient Securities analyst Mao Nan. 'For sure the new measures could boost buying, particularly of blue chips.'

A story posted on the website of the China Securities Journal said the CSRC would announce the names of the brokerages tomorrow. However, sources said an imminent launch may not be possible because preparatory work would take time.

Beijing planned to set up a multibillion-yuan stabilisation fund to arrest the market decline a few months ago but the government has yet to work out a final plan.

Additional reporting by Adam Chen