Title: China Reduces Minimum Margin Ratio for Securities Financing to Boost Market Confidence
Date: August 27, 2023
The recent decision by the China Securities Regulatory Commission (CSRC) to reduce the minimum margin ratio for securities financing has garnered widespread attention in the market. In efforts to activate the capital market and boost investor confidence, the Shanghai Stock Exchange, Shenzhen Stock Exchange, and Beijing Stock Exchange announced that the financing margin for investors purchasing securities will be reduced from 100% to 80%.
These measures, which are set to be implemented after the market close on September 8, 2023, are part of a comprehensive package of policy arrangements issued by the CSRC. The regulators intend to promote the function of margin financing and securities lending, expand the scope of financing targets, and reduce financing rates.
The latest data indicates that the balance of financing and securities financing in the A-share market exceeds 1.5 trillion yuan, with the total value of collateral for margin financing and securities lending reaching 4.85 trillion yuan. Margin financing and securities lending account for around 7% of the market.
Securities companies and financial research professionals interviewed regarding the market situation expressed that moderately reducing the margin ratio and expanding the scope of financing targets are crucial to activating the market, boosting investor confidence, and attracting incremental funds. They believe that such measures will positively impact the performance growth of securities firms by increasing interest income and promoting comprehensive business.
The CSRC’s move to implement counter-cyclical adjustment through margin financing and securities lending aims to improve liquidity in the market. By reducing transaction costs and increasing the supply and demand of securities, the market authorities expect higher turnover rates and improved market liquidity. These adjustments also expand the capacity for diversified trading strategies, attract professional investors, and facilitate the decentralization and high-quality development of the capital market.
Although the scale of financing and securities financing is expected to decline in 2022 for most securities firms, Founder Securities stands as an exception with predicted positive growth. The company’s credit business states that reducing the margin ratio and expanding the financing scope will have a positive effect on the active market. While considering the short-term market environment, the adjustments are expected to attract incremental funds and increase market activity in the long run.
Overall, financing and securities financing serve as an essential force in the market, catering to investors with a higher risk appetite, substantial funds, and professional expertise. These businesses play a crucial role in promoting market activity and generating significant income for securities firms engaged in wealth management services.
With the implementation of these measures, it is anticipated that the capital market will witness increased liquidity, improved market confidence, and higher transaction rates, contributing to the overall growth and development of the securities industry.