Title: China Securities Regulatory Commission Cracks Down on Securities Lending
On February 7, the China Securities Journal published an article titled “Strengthening Business Supervision and Continuous Optimization of Securities Lending Mechanisms,” which announced a crackdown on securities lending by the China Securities Regulatory Commission. This move comes in response to the hot topic concerns of the market.
According to the article, the spokesperson of the China Securities Regulatory Commission addressed reporters’ questions on February 6 regarding the “two financing” securities lending business. A spokesperson revealed that the commission is proposing to suspend the scale of new securities lending, strictly prohibit securities companies from providing securities lending to investors who use securities lending to implement intraday reversal transactions (disguised T+0 transactions), and continue to increase supervision and enforcement efforts.
Industry insiders believe that these new measures reflect the concept of maintaining a fair trading order in the market and will boost investor confidence. The move to strictly prohibit disguised T+0 transactions in securities lending is expected to contribute to a decrease in the scale of securities lending.
Specifically, a spokesperson for the China Securities Regulatory Commission proposed three measures to further strengthen supervision of the securities lending business. Firstly, the commission will suspend the new scale of securities refinancing and gradually close existing arrangements. The second measure requires securities companies to prohibit supplying securities lending to investors conducting disguised T+0 transactions. Lastly, the commission aims to increase supervision and enforcement efforts to crack down on illegal activities such as improper arbitrage using securities lending transactions.
The commission’s efforts have led to the suspension of new lending of refinancing securities from many fund companies, including China Asset Management, China Southern Asset Management, and E Fund.
The move to suspend the scale of new securities refinancing aims to restrict the main source of securities lending and will contribute to maintaining a fair and stable market. E Fund, China Asset Management, GF Fund, Southern Fund, Wells Fargo Fund, Cathay Fund, Huabao Fund, Huatai-PineBridge Fund, and other public funds announced that they would suspend the new scale of refinancing securities lending to comply with the commission’s requirements.
The overall goal of the China Securities Regulatory Commission is to promote a better functioning securities lending system. The margin trading system is a common trading system in mature capital markets and has become an essential risk management tool in China since its introduction in 2010. In response to current market conditions, the commission has taken a series of measures to strengthen supervision of the securities lending business, resulting in a 24% decline in the balance of securities lending.
Guided by an investor-oriented concept, the China Securities Regulatory Commission is focusing on improving issuance pricing, quantitative trading, securities lending, and other regulatory rules to protect the legitimate rights and interests of investors. This emphasis is reflected in the commission’s recent decision to further optimize the securities lending mechanism.
The release of these new arrangements has prompted many securities firms to revise business contracts, adjust trading rules, and strengthen business management to prevent risks in two-financing businesses. These changes are expected to be beneficial in protecting the rights and interests of investors.