China escalates crackdown on short-selling with stringent measures

In a move to curb short-selling, China's securities regulator announced on Tuesday a series of stringent measures, including the suspension of brokerages from borrowing shares for lending and imposing a cap on the size of securities re-lending businesses.

This is based on a Reuters report.

The China Securities Regulatory Commission (CSRC) is also set to prohibit securities lending to investors who sell stocks on the same day of purchase and has pledged to crack down on illegal arbitrage involving short-selling.

These steps come in the wake of a recent market downturn, prompting Chinese authorities to implement various measures to bolster share prices and restore confidence in the economy.

The CSRC's latest measures aim to address the challenges posed by short-selling, a practice that has raised concerns about market stability.

The regulator emphasised a "zero tolerance" stance against malicious short sellers, warning of severe consequences for those violating the rules.

The CSRC explicitly stated that individuals flouting the law would "lose their shirts and rot in jail."

As part of the regulatory crackdown, the CSRC announced the suspension of new business in securities re-lending, a practice wherein brokerages borrow shares to lend to clients for short selling.

Existing businesses engaged in securities re-lending will be gradually phased out.

Following the regulatory announcement, several mutual fund companies, including China Asset Management Co, E Fund Management Co, and Southern Asset Management, declared the suspension of lending shares and the gradual discontinuation of securities re-lending.

Brokerage firm Huaxi Securities Co also committed to ceasing lending shares for short selling.

To reinforce market integrity, the CSRC urged brokerages to enhance scrutiny over clients' trading behaviours.

This move aims to ensure compliance with existing regulations, particularly those preventing the sale of shares on the same day of purchase.

The regulator noted that some investors have circumvented these rules by using borrowed shares, and consequently, the CSRC will now ban such traders from borrowing shares.

The recent regulatory efforts have already led to a 24 per cent decline in the securities lending business, amounting to 63.7 billion yuan, according to the CSRC.

In addition to curbing short-selling, the CSRC encouraged listed companies to fortify their value through various means, including share buybacks, stock purchases by major shareholders, regular dividend pay-outs, and mergers and acquisitions.

These measures aim to bolster the overall stability and attractiveness of Chinese stocks, fostering investor confidence in the market.

(With inputs from Reuters)