China Securities Regulatory Commission Enhances Securities Lending Systems for Counter-Cyclical Regulation
On October 14, the China Securities Regulatory Commission (CSRC) made significant adjustments and optimizations to the securities lending-related systems. Following this, the Shanghai Stock Exchange, Shenzhen Stock Exchange, and Beijing Stock Exchange implemented corresponding arrangements to optimize securities lending transactions and refinancing securities lending transactions. This move is expected to strengthen countercyclical adjustments in the securities lending market and maintain transactional order within the securities market.
The CSRC’s adjustments to the securities lending-related systems include increasing the margin ratio for securities lending from no less than 50% to 80%. Additionally, private securities investment funds participating in securities lending will now have a raised margin ratio of 100%. On the lending side, the CSRC has cancelled the lending of special asset management plans established by listed company executives and core employees through participation in strategic placements. Furthermore, it will moderately restrict the lending methods and proportions of other strategic investors during the early stages of listing.
This move by the CSRC to optimize the rules and regulations surrounding securities lending is seen as a concrete manifestation of regulatory agencies achieving countercyclical adjustments. Tian Lihui, Dean of the Institute of Financial Development at Nankai University, applauded the CSRC’s efforts, stating that it will help rectify market failures, prevent improper arbitrage, and correct trading behaviors of insiders.
Specific arrangements within the exchanges emphasize that strategic investors should not conspire with securities lending investors or other entities to manipulate proceeds from stock allotments or engage in improper benefit transfers during the lending process. Additionally, fairness and risk control principles need to be followed, a sound allocation mechanism for securities lending sources should be established, and the transfer of interests should be prevented. Verification procedures for investors and the strengthening of management for their securities lending behavior are also emphasized.
Zhang Gang, Chief Analyst of Southwest Securities, highlighted the strict supervision of securities lending by strategic investors. To prevent disguised reductions in holdings or benefit transfers, the CSRC clearly sets strict consequences for violations. The CSRC’s proposal to improve the allocation mechanism of securities lending sources aims to strengthen the management of securities lending transactions and enhance supervision and law enforcement through institutional means.
The margin trading and securities lending system is a fundamental trading system in mature capital markets. It provides trading tools for both long and short positions in the market and enhances the capital market’s price discovery capabilities. Additionally, margin trading and securities lending serve as crucial risk management tools, effectively meeting the risk management needs of investors.
Yang Delong, chief economist of Qianhai Kaiyuan Fund, views the policy adjustment as a way to guide the market in using relevant tools in a healthy manner and further encourage funds to participate in the market. By restricting securities lending, the system’s countercyclical adjustment capabilities can be fully utilized. Moreover, it will alleviate concerns among investors regarding short selling by certain private equity funds and other investors through securities lending. Ultimately, this will reduce the pressure for cashing out in the secondary market, boost investor confidence, and stabilize and stimulate the capital market.
Overall, the CSRC’s optimization of securities lending-related systems is aimed at facilitating countercyclical regulation, ensuring fair and transparent transactions, and maintaining stability within the securities market.