China Calls On Brokers to Help Stabilize Market
Regulator warns margin trading must be kept in line with the capital strength, risk-management capabilities of firms
China’s securities regulator said Friday that it has called on the nation’s securities brokers and fund managers to help stabilize the stock market after a steep selloff in recent weeks.
In meetings with officials from the securities industry, a senior official with the China Securities Regulatory Commission also called for stepped-up supervision over margin trading in an effort to limit market risk, the regulator said. Margin trading, which allows investors to buy shares with borrowed funds, has been a factor in China’s massive stock-market run-up and subsequent dramatic drop.
“We need to further strengthen the management of margin-trading business,” said Zhang Yujun, the regulator’s assistant chairman, in a statement posted on its official Weibo social-media account.
He added that margin trading had to be kept in line with the capital strength, liquidity conditions and risk-management capabilities of individual firms, according to the statement.
Margin trading amplifies returns in a bull market, but it also magnifies losses when share prices slide.
Mr. Zhang also said that brokers aren’t allowed to provide cash or any other assistance to what are called umbrella trusts, which have been used to fund margin-financing activities.
He also urged brokers to strengthen supervision over program trading and to prohibit any “malicious short selling” through the use of program trading, according to the statement.
China’s stock market saw a sharp selloff in mid-June, with turmoil continuing into July despite an aggressive government rescue program. Share prices in Shanghai were down 14% in July, the worst monthly performance since August 2009, according to its benchmark index.
On Friday, the Shanghai Composite Index finished up 2.3% at 3744.21 and the smaller Shenzhen Composite rose 3% to 2177.15.
Separately, the nation’s antigraft watchdog said late Friday that an official at the stock regulator had been sacked and expelled from the Communist Party for allegedly taking bribes.
Li Liang, who had headed the investor protection department at the CSRC, took bribes and abused his regulatory authority, according to the Communist Party’s Central Commission for Discipline Inspection. Mr. Li, who supervised stock market research and governance over the issue of securities, had been placed under investigation in December of last year, it said.
CSRC officials couldn’t be reached late Friday for comment.
Source: WSJ – China Calls On Brokers to Help Stabilize Market
