(Yicai) Feb. 5 -- The Chinese mainland’s two key stock markets steadied after the securities regulator said that it will take effective measures to stave off risks from pledged shares.
The Shanghai Composite Index finished 1 percent lower at 2,702.19 today, after falling by as much as 3.5 percent to touch the lowest point since February 2019. The Shenzhen Component Index ended at 7,964.71, down 1.1 percent, while the ChiNext Index, which tracks Shenzhen’s growth enterprise market, rose 0.8 percent to 1,562.61.
The China Securities Regulatory Commission published a question-and-answer piece at noon, indicating that to promote stable market operations it would guide brokerages to increase the flexibility of the liquidation line -- below which financial institutions forcefully sell pledged stock to avoid losses, which can trigger further market declines.
Recent stock market plunges have raised concerns among investors about the forced liquidation of stock pledges in which shareholders use their holdings as collateral to secure loans from financial institutions.
The CSRC has been working to resolve stock pledge risks in recent years. The market value of pledged mainland-listed shares made up around 3 percent of the total as of Feb. 2, down from nearly 11 percent in 2018, according to the CSRC. The balance of pledged financing was CNY1.6 trillion (USD222.3 million), down from CNY2.7 trillion.
This year, about CNY27.4 million (USD3.8 million) of pledged stocks have been liquidated, which accounts for very small share of daily trading volume of the stock market, the watchdog added.
Since the start of the year, the Shanghai Composite Index has fallen 9 percent, while the Shenzhen Component Index has slipped over 16 percent, and the ChiNext Index is down 17 percent.
Editors: Dou Shicong, Emmi Laine