New trading methods to tap banks, insurers

PUBLISHED : Wednesday, 28 July, 2010, 12:00am
UPDATED : Wednesday, 28 July, 2010, 12:00am

Beijing will take a significant step to boost margin trading and short selling by allowing banks and insurers to take part in the business.

Brokerages would be allowed to borrow from banks and insurers money or securities that could then be lent to investors, a China Securities Regulatory Commission official said. The move was intended to increase the use of the new trading methods in a slumbering market.

No timetable for the liberalisation has been set, but the official said the regulator was determined to boost the trading methods rapidly.

Beijing officially launched margin trading and short selling at the end of March, allowing only six brokerages to take part, with commitments of 45 billion yuan (HK$51.57 billion), under a pilot scheme.

In June, a second batch of five securities firms received the green light to join in the trading, and the CSRC was due to hand out a further 15 licences soon, the official said.

Margin trading allows investors to borrow money from brokerages to buy equities, while short selling allows them to borrow stocks to sell.

At a media briefing in Beijing recently, the regulator said it would accelerate the development of the businesses.

At present, brokerages are lending their own cash and equities that they hold to clients who wish to use these methods. The liberalisation would give mainland investors wider access to capital and equities.

Third-party companies controlled by the state would be set up to offer the intermediary services - borrowing funds and shares from banks and insurers, then lending them to brokerages to expand their margin trading and short selling businesses.

Mainland markets have been among the world's worst performers this year. The Shanghai Composite Index has fallen 21.4 per cent as monetary tightening has caused the draining of liquidity.

'Overall, the market's trend is to go down,' Guotai Junan Securities analyst Zhang Kun said. 'The liberalisation on margin trading and short selling will be of little use to the market performance.'