(Yicai Global) Dec. 29 -- Qualified Foreign Institutional Investors have carried out the first-ever margin trading and short selling transactions by QFIIs in China’s mainland stock market.

Guotai Junan Securities facilitated transactions for a large foreign institutional investor early today, the Shanghai-based brokerage told Yicai Global. The deals involved stocks traded on China’s main boards as well as the Nasdaq-style ChiNext in Shenzhen and Star Market in Shanghai.

Huatai Securities also said it helped QFII and Renminbi Qualified Foreign Institutional Investors complete margin trading on the main boards, ChiNext and Star Market.

Many brokerages, including Citic Securities, opened mainland share margin accounts for their QFII clients yesterday.

The participation of QFIIs in the margin financing and refinancing business will help attract high-quality funds to the market, improve the long-short balance mechanism, enrich investment methods, and boost transaction activity, an industry insider said.

It will further enhance the level of capital market opening-up, provide new impetus for deepening market reforms and is of great significance for improving China’s financial system, the person said.

Market Opener

China introduced the QFII scheme in 2003 to help open up the country’s financial market. But the government has not until now allowed QFIIs to take part in margin trading in order to restrict and guide foreign investment.

Calls to expand the scope of QFII trading have increased in recent years and the authorities issued new regulations in September allowing QFIIs and RQFIIs to invest in securities listed on Beijing’s National Equities Exchange and Quotations, in private investment funds, financial futures, commodity futures and options, and to participate in bond buybacks, margin trading in stocks and the refinancing business.

The overall market value of 545 stocks held by QFIIs exceeded CNY200 billion (USD30.6 billion) as of the third quarter, an increase of 37.5 percent from the end of last year and nearly four times from the end of 2010, according to data from Huachuang Securities. The number of shares held has been rising for the past five years.

Trading volume in Shanghai and Shenzhen was CNY1.62 trillion (USD248 billion) as of yesterday, an increase of about CNY100 billion (USD15.3 billion) from the end of October. Margin trading accounted for CNY1.49 trillion, while short selling made up CNY129.5 billion.

Editor: Peter Thomas