In a significant move to stabilize its faltering stock market, China, led by President Xi Jinping, has announced a crackdown on short selling. The China Securities Regulatory Commission (CSRC) has put forth regulations that prevent investors from lending out shares for trading purposes for a determined period. This action, which comes into effect immediately, is a part of a series of market interventions by Chinese authorities aimed at shoring up the stock market, which has been in decline for several months.
The blue chip CSI300 Index, a key benchmark for the Chinese stock market, witnessed a near five-year low, triggering these government actions. Hedge fund managers have reported receiving guidance from China’s financial futures exchange, cautioning against aggressive short selling, particularly the practice of “naked” short selling which is not backed by hedging. This guidance, while not formal regulation, carries significant weight in signaling the government’s stance on market practices.
In addition to these measures, the CSRC has also suspended the lending of restricted shares, which are usually bound by sale and transfer restrictions. This move is aimed at reducing the efficacy of securities lending and curbing the advantages institutions have in using information and tools for market manipulation. This is consistent with the broader strategy to create a more equitable market environment and to limit capital outflows, as evidenced by previous moves such as the country’s largest brokerage ceasing stock lending to retail investors and increasing margin requirements for institutional investors.