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China announces rules on margin trading, short selling

By Li Xiang (chinadaily.com.cn)
Updated: 2010-01-22 20:21
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China's top securities regulator today announced the regulations on the pilot programs of the business of margin trading and short selling which is expected to be launched soon.

Securities firms must have at least 5 billion yuan in net assets and be rated as A-class in order to be qualified for the business. The regulator also required securities firms to have sufficient capital holdings and stocks of their own and have completed the test runs of the trading network to do the business.

"We will gradually loosen the requirement and expand the pilot programs to more securities firms after the first batch of selected firms achieve successful results," said an official at the China Securities Regulatory Commission (CSRC).

The regulator also asked qualified securities firms to choose clients carefully based on the review of their financial status, trading experience and risk preference. The purpose is to restrict investors with low risk tolerance and insufficient trading experience from the business, the CSRC official said.

In 2008, the CSRC picked 11 top brokerages for the test runs of the trading network, including CITIC Securities, Haitong Securities, Guotai Junan, Shenyin Wanguo and Everbright Securities. It was reported that the CSRC will pick 6 to 7 domestic brokerages from the 11 candidates for the trial program in the initial phase.

The CSRC did not reveal what stocks will be the target for the business of margin trading and short selling but it said the selection will be based on the stock's market value, turnover rate and volatility.

Margin trading and short selling will allow investors to borrow money to buy securities or borrow securities to sell. Once launched, the business will shore up the revenues of the securities industry by 15 to 20 percent, analysts said.