Asia Financial: China restricts securities lending in short selling clampdown

The China Securities Regulatory Commission (CSRC) said in a statement that it plans to restrict securities lending businesses and tighten scrutiny on improper regulatory arbitrage, according to Asia Financial. CSRC said it will take various steps to strengthen the management of securities lending and re-lending businesses, including higher margin requirements.

It will also restrict lending of shares by strategic investors and senior management in newly listed companies, the regulator said. The rules come amid calls to restrict securities lending by strategic shareholders in newly-listed companies, after senior management of an automobile parts-maker was found to have lent shares to short sellers on the first day of trading after its initial public offering (IPO).

While the move was in compliance with existing Chinese securities regulations, it triggered huge public discontent and a regulatory probe into the activities.

Late last month, the CSRC began investigating some hedge funds and brokerages on quantitative trading strategies, sources said. It also sought information from major quant funds on their money-making strategies. The steps came as fund managers and retail investors heaped criticism on quant funds and short sellers for market weakness, as they are able to profit from share price falls and volatility.

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