China Securities Regulatory Commission Strengthens Supervision of Securities Lending Business
In a recent article published by the “China Securities Journal,” the China Securities Regulatory Commission announced that it will be implementing stricter measures to strengthen the supervision of the securities lending business. The commission has proposed to suspend the scale of new securities lending and strictly prohibit securities companies from providing securities lending to investors who use securities lending to implement intraday reversal transactions, also known as disguised T+0 transactions.
The move comes as a response to hot spots of market concern and aims to maintain a fair trading order in the market while boosting investor confidence. Many fund companies, including China Asset Management, China Southern Asset Management, and E Fund, have announced that they will suspend new lending of refinancing securities in compliance with the new regulations.
Specifically, the China Securities Regulatory Commission has proposed three measures to further strengthen supervision of the securities lending business. Firstly, it will suspend the new scale of securities refinancing and gradually close the existing stock. Secondly, it will strictly prohibit providing securities lending to investors engaged in disguised T+0 transactions. Thirdly, it will continue to increase supervision and enforcement efforts to ensure that the securities lending business runs smoothly.
Experts believe that the suspension of the scale of new securities refinancing has directly restricted the main source of securities lending. It is expected that the scale of securities lending will decrease steadily and orderly in the future.
The margin trading system is a common basic trading system in mature capital markets, providing trading tools for both long and short parties in the market. Since its introduction in 2010, China’s margin trading mechanism has become an important risk management tool. However, the total scale of securities lending is relatively small, currently accounting for 0.1% of the circulating market value of A-shares. As a result, the impact of current securities lending transactions on the trend of the A-share market is very limited.
Since the release of new securities lending regulations in October 2023, the China Securities Regulatory Commission has taken many steps to regulate securities lending behavior, achieving remarkable results. In January 2024, the commission further optimized the securities lending mechanism, prompting many securities firms to revise business contracts, adjust trading rules, and strengthen business management to prevent risks in the two-financing business.
The move to enhance the supervision of the securities lending business reflects the commission’s emphasis on protecting the legitimate rights and interests of investors, especially small and medium-sized investors. By improving the transaction rules of the two-financing business, the commission aims to ensure the rights and interests of investors are protected.