China regulator announces more curbs on short-selling

BEIJING/SHANGHAI (Reuters): China’s securities regulator said on Tuesday it would suspend brokerages from borrowing shares for lending and cap the size of the so-called securities re-lending business, as part of further efforts to curb short-selling.

The watchdog will also ban securities lending to investors who sell stocks on the same day of purchase, and vowed to crack down on illegal arbitrage using short-selling.

Chinese authorities have announced a raft of measures to support share prices after the market (.CSI300) plunged to five-year lows last week as confidence wanes in an ailing economy.

The fresh measures came a day after the China Securities Regulatory Commission (CSRC) vowed “zero tolerance” against malicious short sellers, warning those who dare flaunt the law will “lose their shirts and rot in jail”.

The CSRC said on Tuesday that no new business would be allowed for securities re-lending, in which brokerages borrow shares and lend them to clients for short selling. Existing businesses would be gradually wound up.

Soon after the CSRC announcement, mutual fund companies including China Asset Management Co, E Fund Management Co and Southern Asset Management said they would suspend lending shares and phase out securities re-lending. Brokerage Huaxi Securities Co also said it would stop lending shares for short selling.

In addition, the watchdog urges brokerages to tighten scrutiny over clients’ trading behaviours.

Under China’s regulations, shares cannot be sold on the same day of purchase, but some investors skirt the rules using borrowed shares. The CSRC said that such traders would be banned from borrowing shares.

Recent efforts to curb short-selling have led to a 24% drop in the securities lending business, to 63.7 billion yuan, the CSRC said.

The regulator also urged listed companies to bolster their value through share buybacks, stock purchases by major shareholders, regular dividend payouts, and merges and acquisitions.