(Yicai) Jan. 15 -- China’s stock exchanges have tightened rules on margin financing to curb leverage levels and ensure financial stability after a multi-month market rally that has put the benchmark Shanghai Composite Index in striking range of 4,200, the highest in 10 and a half years.

The Beijing, Shanghai, and Shenzhen bourses have raised the minimum margin requirement for leveraged stock purchases to 100 percent from 80 percent, according to notices they issued yesterday.

Margin trading allows investors to use the securities they own as collateral to buy more assets they would not be able to acquire without leverage. To calculate how much additional funding can be extended, brokers first convert the margin ratio into its reciprocal, subtract one to derive the leverage factor, and then multiply the result by the value of collateral assets.

Under an 80 percent minimum, for instance, an investor with CNY1 million (USD143,490) of eligible securities could borrow CNY250,000 (USD35,877) to buy more stock. Now that the ratio is 100 percent, that same investor would have no further borrowing capacity.

With stocks on a strong upward trajectory and the Shanghai Composite approaching its highest point since July 2015, shrinking leverage to cool the market is necessary, securities analysts told Yicai.

Trading momentum has carried into this year, with all four stock benchmarks extending their rallies and repeatedly notching multi-year highs. As of yesterday, the Shanghai Composite was up 23 percent this month, while the Shenzhen Component Index had added 37 percent. The tech-heavy Shanghai Star Market Composite Index and ChiNext Index had surged 64 percent and 56 percent, respectively.

Margin trading has become increasingly popular against this backdrop. Outstanding leveraged financing hit a record CNY2.28 trillion (USD327.3 billion) on Sept. 1 last year and went on climbing, reaching CNY2.67 trillion on Jan. 13, equivalent to about 2.6 percent of the total value of tradable shares in the stock market.

Newly opened margin trading accounts also reached a new high of 1.54 million last year, up by 533,600 accounts or 53 percent on 2024, according to statistics from CSData.

Despite the balance of securities margin trading repeatedly setting new highs since September, the ratio of margin financing to the market value of tradable shares has stayed under 2.7 percent, well below the more than 4 percent seen around the 2015 market peak, an industry insider told Yicai. This indicates that overall market leverage has not yet returned to the historical peak.

Editors: Tang Shihua, Futura Costaglione