China’s Securities Lending Jumps Seven-Fold After Margin Trading Rules Eased
Xu Wei
DATE:  Nov 30 2020
/ SOURCE:  Yicai
China’s Securities Lending Jumps Seven-Fold After Margin Trading Rules Eased China’s Securities Lending Jumps Seven-Fold After Margin Trading Rules Eased

(Yicai Global) Nov. 30 -- Securities lending in China, the only short-selling tool in the mainland stock market, has surged 7.3 times so far this year mainly due to the easing of margin trading restrictions in early July, according to a media report.

Securities lending has risen to CNY116.3 billion (USD17.7 billion) from less than CNY14 billion (USD2.13 billion) at the start of the year, the Securities Times said yesterday, adding that another reason for the increase was huge gains in some stocks over the past two years, which has made short-selling funds active.

But compared with the CNY1.6 trillion (USD243.3 billion) involved in margin trading, the market impact of securities lending is limited to some stocks, not the whole market, the report added.

Margin trading and securities lending refer to brokers loaning funds to clients to buy listed securities or lending listed securities to clients for them to sell. Both have been around for more than a decade, with margin trading developing very fast but the uptake of securities lending quite slow. At the start of this year, margin trading was worth more than CNY1 trillion (USD152 billion).

Still, margin trading grew by just CNY450 billion this year, an increase of about 45 percent, far slower than the expansion in securities lending, according to Wind data. The uptick in securities lending happened mainly in the last five months. At the start of July it was CNY36 billion, which indicates a gain of CNY80 billion over those months.

China Securities Finance unveiled new regulations on July 3, which abolished the restriction on the margin withdrawal ratio of securities companies' refinancing business. Refinancing business means that the CSF loans out its own or legally raised funds or securities to brokerages for their financing operations, provided they deposit the corresponding margin with the CSF.

For brokers, the refinancing business has little effect on margin trading because clients use stocks as collateral. But the securities lending business requires brokers to obtain securities from and deposit margin with the CSF in order to lend securities to clients, so refinancing refers more to the securities refinancing business.

As for the impact on the market, though the growth in securities lending shows that short-selling power is strengthening, it is positive for brokers because it can increase the market’s trading volume and income from interest.

Editor: Peter Thomas

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Keywords:   Margin Financing Short Stock Markets