(Yicai) Jan. 29 -- China's securities regulator announced it banned the lending of restricted shares and will curb the refinancing of securities.

Shareholders are no longer allowed to lend their restricted shares, those offered to investors or employees by the company with limits on their sale period, from today, the China Securities Regulatory Commission said yesterday.

Moreover, the CSRC will adjust the market-based declaration of securities refinancing to next-day availability from real-time availability from March 18. The refinancing of securities is when equity holders lend their shares in listed companies to borrowers through a securities exchange at a specific rate. The borrowers return the stock by the agreed deadline and pay a corresponding fee.

The new regulations aim to highlight fairness and reasonableness, reduce the efficiency of securities lending, restrict the advantages of institutions in the use of information and tools, give investors more time to digest market information, create a fair market, and tighten supervision and monitoring of restricted stock lending and securities lending, CSRC noted. Moreover, they can resolutely crack down on illegal activities to reduce holdings and cash out in the name of securities lending.

The restriction on the lending of restricted shares was expected, but the actual impact may be relatively limited, a broker told Yicai. Adjusting the market-based agreed declaration of refinancing securities from real-time availability to next-day availability may affect some quantitative transactions, which is fairer for retail investors, the broker added.

With these new measures, the CSRC hopes that the market will stop falling as soon as possible, the broker said, adding that if the stock market continues to fall, there could be risks such as equity pledge liquidation, so stronger measures are necessary to support the market and the economy.

The two new measures will send a signal to stabilize market confidence, but they may not be enough to reverse market expectations, a chief non-banking analyst at a brokerage firm told Yicai.

It is worth noticing that the new regulations were announced about two and a half months after a unit of Chinese private equity firm Hillhouse Capital exposed a loophole in the information disclosure of refinancing.

HHLR Management, which was Chinese solar panel giant Longi Green Energy Technology's third-largest shareholder with a 5.85 percent stake as of the end of last year, received a letter of notice from the CSRC on Nov. 8 for allegedly unlawfully selling some equity in Longi.

HHLR participated in the refinancing of securities and lent out 1 percent of Longi's shares for no more than 182 days in March, temporarily bringing its holdings to below 5 percent, a minimum stake for shareholders to bear their disclosure obligations.

HHLR's holdings in Longi were reduced to 4.85 percent on March 31 after it lent out the shares. However, the ratio only returned to 4.98 percent after the lending period expired on Sept. 30.

This indicates that HHLR sold 0.87 percent of its equity during the lending period but did not declare the transaction, and the selling price and amount were not made public.

To tackle this issue, the Shanghai Stock Exchange and Shenzhen Stock Exchange revised their rules on information disclosure of refinancing business in mid-November.

After the revision, shareholders with equities of at least 5 percent in a listed company can no longer dodge their information disclosure obligations by lowering their holdings via securities refinancing.

As a tool originally aiming to increase market liquidity and vitality, refinancing will also disturb the market's order if abused, China Galaxy Securities said back then. The regulator's timely patch of the loophole can better maintain the stock market's fair-trade environment and enhance common investors' confidence, it added.

Editor: Futura Costaglione