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China to launch securities margin trading soon
Updated: 2008-10-05 21:47

BEIJING - China's securities regulator announced Sunday that it will soon launch margin trading business for securities firms, which has long been expected by the market.

The business, allowing traders to borrow part of the money necessary to buy a security or borrow security to sell, and practiced in most bourses across the world, would change the current one-way trade on both Shanghai and Shenzhen stock markets and serve as a risk aversion tool for investors.

Sources with the China Securities Regulatory Commission (CSRC) identified the principle of starting the business as "test run first and extending gradually".

Securities firms are only allowed to use its own capital and securities for the experiment margin trading. The initial margin will be set at 50 percent of the purchase price when buying eligible securities or 50 percent of the proceeds of a short sale while the maintenance margin, at 130 percent.

As the CSRC would conduct window guidance or moral persuasion, securities firms were expected to be more conservative. Thus the financial leverage, or the degree to which a business is utilizing borrowed money or securities to fund its operation would only be twice as much as its own equity.