China announces further restrictions on short selling to stabilize stock prices By Reuters

BEIJING (Reuters) – China’s securities regulator announced on Wednesday further restrictions on short selling and promised tighter control of computer-controlled program trading as part of its latest efforts to bolster the ailing stock market.

In China, regulators and investors often blame short selling, or the sale of borrowed shares, for exacerbating market declines.

China’s securities regulator CSRC said it would suspend securities re-lending, in which brokers lend shares to customers for short selling, and increase margin requirements for short sellers.

The CSRC also asked stock exchanges to publish detailed rules to regulate program trading, especially high-frequency trading.

The new measures come after China’s blue-chip CSI300 index posted seven consecutive weeks of losses amid concerns about the health of the Chinese economy.

China has taken a series of measures to prevent short selling since August last year. The latest steps are “a response to investors’ concerns and aimed at stabilizing the market,” the CSRC said in a statement.

The latest restrictions come “at the right time and will help improve market sentiment,” said Yang Delong, chief economist at First Seafront Fund Management Co.

The subcontracting of new securities lending transactions will be suspended from Thursday, while existing contracts must expire by the end of September, the supervisory authority said.

At the same time, the stock exchanges will raise the minimum margin requirement for short selling from 80 to 100 percent, the CSRC announced. However, the hurdle for hedge funds will then be even higher.

The regulator, which launched a crackdown on computer-controlled quant funds earlier this year, announced it would further restrict high-frequency trading to ensure a fair market.

According to the regulator, the number of high-frequency trading accounts has fallen by more than a fifth so far this year, to around 1,600 at the end of June.