China’s securities regulator announced over the weekend that it is suspending the lending of restricted shares in an attempt to limit short-selling activities amid ongoing volatility in the country’s stock markets.
According to a statement posted to its WeChat account, the China Securities Regulatory Commission (CSRC) said the new policy suspending restricted share lending would take effect on January 29th.
Restricted shares refer to company stock that is subject to certain sale and transfer restrictions, often for corporate governance reasons or as part of employee compensation plans. However, these shares can still be lent out to traders looking to engage in derivatives strategies like short selling.
By halting the lending of these shares, the CSRC aims to “highlight fairness and reasonableness, reduce the efficiency of securities lending, and restrict the advantages of institutions in the use of information and tools,” giving more time for all investors to analyze the turbulent markets, according to the regulator.
Short selling refers to an investment strategy where traders borrow shares of a stock they believe to be overvalued and sell them on the open market, hoping to buy them back later at a lower price. China has been exploring ways to limit this practice amid recent stock market declines.
Those stock market woes have been particularly pronounced over the past year, with the benchmark CSI 300 index falling 11% in 2023 on top of even steeper losses in 2021 and 2022. Foreign investors have also been rapidly exiting Chinese equities.
The move to restrict share lending is just the latest attempt by China to curb damaging short selling and stabilize its capital markets. However, the country continues to push forward on other economic priorities like piloting its central bank digital currency (CBDC) and integrating it with commodity trading platforms.
#CSRC #StockMarket #MarketTurbulence
