China Strengthens Supervision of Securities Lending Business, Impacting Market Strategies
The China Securities Regulatory Commission recently implemented new policies to strengthen the supervision of securities lending business, sparking market attention and causing a significant impact on institutions involved in the securities lending industry. The new regulations, effective from March 18th, aim to regulate the countercyclical adjustment of the capital market and create a fairer market order.
According to industry insiders, the new policies have particularly affected high-frequency long-short strategy and securities lending T+0 strategy products. The shift from real-time availability to next-day availability for securities refinancing transactions is expected to limit the efficiency of securities lending, thereby affecting the overall market and various trading strategies.
CITIC Securities believes that the comprehensive suspension of restricted stock lending will further strengthen the countercyclical adjustment of the capital market and aid in maintaining the stable operation of the market. The policy is also expected to reflect the priority of protecting the rights and interests of investors, particularly small and medium-sized investors.
While there is concern about the impact of the new regulations on certain trading strategies, industry experts believe that the new policies will have limited impact on the overall quantitative industry. The T+0 strategy of securities lending, which has been controversial due to attributing short-term changes in some stocks to its influence, will now face increased costs and reduced flexibility under the new regulations.
He Tianying, chairman of Tiansuan Quantitative, pointed out that the strengthening of supervision of the securities lending business will have a noticeable impact on strategies that rely more on securities sources, such as securities lending T+0 and long-short securities lending. However, most large-scale quantitative private placements mainly use stock index futures as hedging tools, and may shift to other hedging tools under the guidance of new regulatory policies.
Furthermore, industry insiders highlight that the impact on the overall industry may be limited, as intraday high-frequency and T+0 strategies account for a very low proportion of the overall scale of the industry. Many quantitative private equity investors also reported that they mainly use non-high-frequency strategies and rarely use securities lending for hedging.
The new regulations are expected to prompt a shift in trading strategies, with managers of long-short strategies tending to switch to other hedging tools and institutions potentially increasing their demand for market-neutral strategies and stock index futures hedging to reduce reliance on securities lending.
While the impact of the new regulations on various hedging methods is still under evaluation, it is clear that the measures introduced by the China Securities Regulatory Commission are intended to bring about a fairer and more stable market environment, protecting the interests of investors and maintaining the transparency, stability, and predictability of the system.