Regulator forms working group with global index provider MSCI for inclusion of Ashares
The rules covering investors' use of margin trading and short selling were relaxed on Friday in adraft document released by the China Securities Regulatory Commission.
Deng Ge, the CSRC spokesman, told a news conference that the CSRC will drop restrictionsthat are no longer compatible with the current conditions involving margin trading, a practice thatallows investors to borrow money to purchase stocks, and short selling, which allows them toborrow securities to sell.
The revised rules scrap a requirement that investors wanting to use these methods must tradewith the same securities brokerage for more than six months, as well as a requirement that theclearing and settlement capital must be placed in escrow with a third-party financial institution.
Deng said that the overall risks of margin trading and short selling are manageable, but he urgedsecurities firms to maintain a "prudent" balance between the scale of their business in theseareas and their capital.
Under the current rules, adopted in 2006, the duration of margin trading and short selling contactsis fixed at six months. Investors are forced to clear their positions when the contracts expire evenif the markets are not in their favor.
Several securities firms were penalized by the CSRC earlier this year for illegally extending thecontract duration for clients, which enabled some investors to delay repayment of margin debt.
Now such contracts can be rolled over, a move that analysts said reflects the regulator's desire tosatisfy long-term investment demand and curb short-term speculation and market volatility.
Leveraged margin trading has been seen as a major factor in pushing the A-share market to aseven-year high, with the benchmark Shanghai Composite Index more than doubling during thepast year. The value of outstanding margin loans extended by securities firms to investors hasexceeded 2 trillion yuan ($322.16 billion).
In a separate announcement on Friday, the CSRC confirmed that it will establish a joint workinggroup with global index compiler MSCI Inc to discuss the inclusion of A shares in its benchmarkindex for emerging markets.
The CSRC said that it is working with MSCI to address remaining issues about market accessand other technical details.
MSCI said on Wednesday that it had delayed including stocks listed on the Chinese mainland inthe benchmark index after international investors expressed concerns over barriers to entry in theChinese capital market.
Deng said that the regulator aims to facilitate the inclusion of A shares "as soon as possible".