Plans to boost Chinese securities lending revealed
24 April 2015 Shanghai
Image: Shutterstock
The Shanghai Stock Exchange has confirmed plans to promote securities lending business in China.
Margin trading and securities lending were launched five years ago on the exchange.
Chinese Margin trading has boomed, with the balance of financing reaching RMB 392.63 billion ($63.62 billion) by the end of March 2014, a year-on-year increase of 144.12 percent.
But securities lending has lagged behind, with business amounting to RMB 2.77 billion ($448.78 million) by the end of March 2014, slightly lower than the end of 2013.
To boost securities lending business, the Shanghai Stock Exchange plans to encourage institutional investors to participate, including publicly-offered funds and asset managers. They will be allowed to take up securities lending from the date of their establishment.
“Such investors shall be supported to engage in securities lending and securities lending of refinancing to propel supply and demand of securities sources in the market, on the basis of making risks controllable and protecting holders’ rights and interests,” said the exchange in an announcement.
Securities lenders and borrowers will also be allowed to negotiate rates and term length, “in a bid to raise the trading efficiency and meet the market demand for securities lending”.
Following reports that the exchange was planning to allow fund managers to lend shares for short selling and expand the number of stocks that can be sold short, it has confirmed that “the trading mechanism of selling through securities lending shall be optimised to enhance trading efficiency”.
The Shanghai Stock Exchange explained in its announcement that the order price at which an exchange-traded fund is sold by investors through securities lending will be kept within the range of valid bidding price stipulated by the exchange, and allowed to be lower than the latest trading price.
“The money from selling through securities lending can be used for purchasing or subscribing for cash management products of securities companies, money market funds and other high-liquidity securities recognised by stock exchanges.”
Short selling is also receiving a boost. “According to actual market development, stocks fit for short selling through securities lending shall be included in the range of underlying securities of securities lending and those of securities lending of refinancing, the number of which shall be increased to 1,100, thereby fully exerting the market regulating role of [the] short selling mechanism of securities lending.”
Earlier in the year, the Shanghai Stock Exchange released guidelines to promote the development of the bond market and increase the liquidity of various bonds and asset-backed securities.
Its existing collateralised repurchase of bonds adopts the trading settlement mechanism of auction and guaranteed delivery, and takes the standard bond system for accounting of the value of pledged bonds.
The exchange said this will further improve market infrastructure, promote innovation in trading products and trading mechanisms of bonds, strengthen the investor protection mechanism, and promote the steady development of the bond market.
The short selling of certain Shanghai-listed A shares was also permitted through the Shanghai-Hong Kong Stock Connect programme at the beginning of March.
Some 414 securities could be sold short through Stock Connect from 2 March, including Industrial and Commercial Bank of China, KPC Pharmaceuticals and state media website People.cn.
Naked short selling is prohibited for northbound trading under Stock Connect’s rules.
Stock Connect, Hong Kong Exchanges and Clearing’s mutual market access programme with the Shanghai Stock Exchange, launched in November 2014.
Margin trading and securities lending were launched five years ago on the exchange.
Chinese Margin trading has boomed, with the balance of financing reaching RMB 392.63 billion ($63.62 billion) by the end of March 2014, a year-on-year increase of 144.12 percent.
But securities lending has lagged behind, with business amounting to RMB 2.77 billion ($448.78 million) by the end of March 2014, slightly lower than the end of 2013.
To boost securities lending business, the Shanghai Stock Exchange plans to encourage institutional investors to participate, including publicly-offered funds and asset managers. They will be allowed to take up securities lending from the date of their establishment.
“Such investors shall be supported to engage in securities lending and securities lending of refinancing to propel supply and demand of securities sources in the market, on the basis of making risks controllable and protecting holders’ rights and interests,” said the exchange in an announcement.
Securities lenders and borrowers will also be allowed to negotiate rates and term length, “in a bid to raise the trading efficiency and meet the market demand for securities lending”.
Following reports that the exchange was planning to allow fund managers to lend shares for short selling and expand the number of stocks that can be sold short, it has confirmed that “the trading mechanism of selling through securities lending shall be optimised to enhance trading efficiency”.
The Shanghai Stock Exchange explained in its announcement that the order price at which an exchange-traded fund is sold by investors through securities lending will be kept within the range of valid bidding price stipulated by the exchange, and allowed to be lower than the latest trading price.
“The money from selling through securities lending can be used for purchasing or subscribing for cash management products of securities companies, money market funds and other high-liquidity securities recognised by stock exchanges.”
Short selling is also receiving a boost. “According to actual market development, stocks fit for short selling through securities lending shall be included in the range of underlying securities of securities lending and those of securities lending of refinancing, the number of which shall be increased to 1,100, thereby fully exerting the market regulating role of [the] short selling mechanism of securities lending.”
Earlier in the year, the Shanghai Stock Exchange released guidelines to promote the development of the bond market and increase the liquidity of various bonds and asset-backed securities.
Its existing collateralised repurchase of bonds adopts the trading settlement mechanism of auction and guaranteed delivery, and takes the standard bond system for accounting of the value of pledged bonds.
The exchange said this will further improve market infrastructure, promote innovation in trading products and trading mechanisms of bonds, strengthen the investor protection mechanism, and promote the steady development of the bond market.
The short selling of certain Shanghai-listed A shares was also permitted through the Shanghai-Hong Kong Stock Connect programme at the beginning of March.
Some 414 securities could be sold short through Stock Connect from 2 March, including Industrial and Commercial Bank of China, KPC Pharmaceuticals and state media website People.cn.
Naked short selling is prohibited for northbound trading under Stock Connect’s rules.
Stock Connect, Hong Kong Exchanges and Clearing’s mutual market access programme with the Shanghai Stock Exchange, launched in November 2014.
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