The China Securities Regulatory Commission (CSRC) has announced new measures to strengthen the supervision of securities lending business and prevent market manipulation. The regulator has also suspended the lending of restricted stocks, which are subject to lock-up periods or trading limits.
According to the CSRC, the new measures are as follows:
- Starting from January 29, 2024, there will be a complete suspension of the lending of restricted stocks, which are shares that cannot be sold or transferred for a certain period of time or under certain conditions. These include shares held by major shareholders, directors, supervisors, senior managers, and core employees of listed companies, as well as shares issued through private placements, mergers and acquisitions, and employee stock ownership plans.
- Starting from March 18, 2024, the efficiency of securities lending will be reduced, meaning that the market-based application for securities refinancing will be adjusted from real-time availability to next-day availability. This means that the borrowers of securities will have to wait until the next trading day to use the borrowed securities for short selling or other purposes.
- The CSRC will also enhance the supervision and inspection of securities lending activities, and crack down on illegal behaviors such as manipulating the market, insider trading, and information disclosure violations.
Why are the new measures introduced?
The CSRC said that the new measures are aimed at maintaining the stability and order of the capital market, and preventing the abuse of securities lending for speculative purposes. The regulator also said that the new measures are in line with the international practices and the development of China’s capital market.
The CSRC noted that securities lending is an important part of the capital market infrastructure, and plays a positive role in improving market liquidity, efficiency, and pricing. However, the regulator also pointed out that securities lending also involves certain risks, such as market volatility, credit risk, and operational risk. Therefore, the CSRC said that it is necessary to regulate and standardize the securities lending business, and balance the relationship between market development and risk prevention.
How will the new measures affect the market?
The new measures are expected to have a significant impact on the market, especially on the supply and demand of securities lending, the short selling activities, and the prices of restricted stocks.
- The suspension of the lending of restricted stocks will reduce the supply of securities lending, and increase the borrowing costs and difficulty for the borrowers. This will also discourage short selling activities, which rely on borrowing securities to sell them in the hope of buying them back at a lower price later. As a result, the market pressure on the restricted stocks will be eased, and their prices may rise.
- The reduction of the efficiency of securities lending will delay the demand of securities lending, and affect the timeliness and flexibility of the borrowers. This will also limit the short selling opportunities, as the borrowers will have to wait for the next trading day to use the borrowed securities. As a result, the market volatility and speculation will be reduced, and the market efficiency and rationality will be improved.
The new measures have received mixed reactions from the market participants. Some investors and analysts welcomed the new measures, saying that they will help stabilize the market and protect the interests of the long-term investors. They also said that the new measures will promote the healthy development of the securities lending business and the capital market as a whole.
However, some investors and analysts also expressed concerns about the new measures, saying that they will restrict the market liquidity and hinder the market innovation. They also said that the new measures will reduce the market depth and increase the market uncertainty.
