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February 13, 2010

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90 firms chosen for new tools

CHINA'S securities regulator has chose 90 companies listed on the mainland as target stocks for a trial operation of margin trading and short selling.

The companies include the top 50 Shanghai-listed firms by market value, such as Sinopec and Baosteel, and the top 40 Shenzhen-listed firms, the two exchanges said in a joint statement on their Websites yesterday.

These companies, which have higher market value, are covered by the SSE 50 Index and the Shenzhen Component Index, the statement said. But no date has been set for the trail operation to start.

Margin trading lets brokers fund stock purchases by individual investors while short selling allows retail investors to sell borrowed securities with the aim of buying them back later at lower prices to profit from the difference. The tools are likely to further shore up liquidity and let investors hedge market risks.

In the trial operation, the bourses will strictly control market risks and then gradually widen the number of firms allowed to take part, the statement said.

The bourses will publish daily trading information of margin trading and short selling and suspend the trial when the target firms move abnormally. They will also kick out any target firm which is suspended from trading or has special treatment status - where a daily trading limit of 5 percent on either direction is set.

The regulator has also set the asset threshold for brokerages in the trial operation. They must have more than 5 billion yuan (US$732 million) in net assets over six months before they apply, and they are also required to be rated as A class.


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