China to begin tests on expanded short selling system
Securities regulator to start testing new system for short selling, and could launch it before the end of this year, despite fears of social unrest
The mainland's securities regulator is expected to begin testing a new technical system for expanded short selling in the coming weeks, a move likely to exacerbate the bearish sentiment on markets.
The China Securities Regulatory Commission (CSRC) has yet to set a clear timeframe for the system's launch, but sources close to the regulator said the liberalisation could be implemented as early as the end of the year.
Under the new system, brokerages will be able to borrow equities from other institutions before re-lending to their clients, who can then sell the shares as they bet on a further slide in the market.
"It is certain that the regulator will give a green light to the liberalisation sooner than later," said one Beijing-based fund manager briefed by CSRC officials on the matter. "The primary concern among the officials is that a short selling spree would cause the fragile stock market to collapse."
The Shanghai and Shenzhen stock exchanges announced in late August that they would expand margin trading and the short selling mechanism.
At that time, brokerages were allowed to only conduct margin trading - borrowing cash from other institutions to re-lend to their clients for share purchases - while putting short selling on hold.