Margin trading program unveiled
Source: Xinhua |
August 31, 2012, Friday
|
Print Edition
Print Edition
CHINA unveiled a new pilot trading scheme to stock exchanges yesterday, allowing margin financing and stock lending for brokerages in a bid to release new funds into the market after shares dropped to the lowest levels since February 2009.
Under the pilot program, brokerages can borrow money and stocks from banks, funds and insurers, and re-lend them to their clients for margin trading and short selling business.
As the first step, the program currently involves only margin trading by 11 brokerages including Guotai Junan Securities and Galaxy Securities, but it will eventually be expanded to include securities lending to facilitate short selling later when players become more familiar with the new business.
A maximum of 120 billion yuan (US$18.9 billion) of fresh liquidity is expected to be pumped into the Shanghai and Shenzhen bourses, where the combined daily turnover stands at around 100 billion yuan.
The program could help brokerages expand their existing margin trading businesses and let investors profit from either rises or drops in share prices.
Yang Ling, president of Beijing-based hedge fund StarRock Investment Management Co Ltd, said the program would boost trading vitality in the market but was likely to decide what direction the index may head.
"Short selling shares right now becomes very dangerous as the market value is at its bottom at the current stage," Yang said.
The program could help long-term investors find other sources besides dividends from shares they buy and hold for a long time, just waiting for the prices to rise.
"If we lend our stocks to short sellers at an annual yield of 7 percent for, say, Kweichow Moutai Co, we could earn our principal in 10 years," said Dan Bin, chairman of OHIM Corp, an investor in the liquor maker.
Under the pilot program, brokerages can borrow money and stocks from banks, funds and insurers, and re-lend them to their clients for margin trading and short selling business.
As the first step, the program currently involves only margin trading by 11 brokerages including Guotai Junan Securities and Galaxy Securities, but it will eventually be expanded to include securities lending to facilitate short selling later when players become more familiar with the new business.
A maximum of 120 billion yuan (US$18.9 billion) of fresh liquidity is expected to be pumped into the Shanghai and Shenzhen bourses, where the combined daily turnover stands at around 100 billion yuan.
The program could help brokerages expand their existing margin trading businesses and let investors profit from either rises or drops in share prices.
Yang Ling, president of Beijing-based hedge fund StarRock Investment Management Co Ltd, said the program would boost trading vitality in the market but was likely to decide what direction the index may head.
"Short selling shares right now becomes very dangerous as the market value is at its bottom at the current stage," Yang said.
The program could help long-term investors find other sources besides dividends from shares they buy and hold for a long time, just waiting for the prices to rise.
"If we lend our stocks to short sellers at an annual yield of 7 percent for, say, Kweichow Moutai Co, we could earn our principal in 10 years," said Dan Bin, chairman of OHIM Corp, an investor in the liquor maker.
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