Margin trading set for debut
By Winny Wang |
March 31, 2010, Wednesday
|
Print Edition
Print Edition
CHINA will launch trial operation of margin trading and short selling today as the country moves closer to establishing a multi-level equity market.
Shanghai and Shenzhen stock exchanges said in statements yesterday that they would operate trading systems for margin trading and short selling starting today.
The new business will diversify the country's equity market along with stock index futures, which will begin trading on April 16.
The reform is aimed at spurring innovation and transforming Shanghai into a global financial center by 2020.
"The A-share market lacked a short mechanism so investors could only make money when the market was rising, which led to price bubbles of many stocks," Soochow Securities said.
"Margin trading and short selling can help curb speculators, and index futures can help investors hedge risks to bring prices back to normal," the securities house said.
Margin trading lets brokers fund stock purchases by individual investors. Short selling allows retail investors to sell borrowed securities with an aim to buy them back later at lower prices to profit from the difference.
Both are expected to further shore up liquidity and allow investors to profit by betting on a market's drop.
"The bourses are likely to suspend margin trading when finding abnormal trading practices to ensure a stable market," said an official of the stock exchanges.
The margin trading and short selling pilot program is initially limited to six brokerages - CITIC Securities, Guotai Junan Securities, Haitong Securities, Guosen Securities, Everbright Securities and GF Securities.
The securities regulator has chosen 90 companies listed on the mainland as target stocks for the program, covering the top 50 Shanghai-listed firms by market value and the top 40 Shenzhen-listed firms.
"The launch of margin trading will shore up demand for blue chips and increase their liquidity premium," said Qin Xiaobin, an analyst at Galaxy Securities Co.
Shanghai and Shenzhen stock exchanges said in statements yesterday that they would operate trading systems for margin trading and short selling starting today.
The new business will diversify the country's equity market along with stock index futures, which will begin trading on April 16.
The reform is aimed at spurring innovation and transforming Shanghai into a global financial center by 2020.
"The A-share market lacked a short mechanism so investors could only make money when the market was rising, which led to price bubbles of many stocks," Soochow Securities said.
"Margin trading and short selling can help curb speculators, and index futures can help investors hedge risks to bring prices back to normal," the securities house said.
Margin trading lets brokers fund stock purchases by individual investors. Short selling allows retail investors to sell borrowed securities with an aim to buy them back later at lower prices to profit from the difference.
Both are expected to further shore up liquidity and allow investors to profit by betting on a market's drop.
"The bourses are likely to suspend margin trading when finding abnormal trading practices to ensure a stable market," said an official of the stock exchanges.
The margin trading and short selling pilot program is initially limited to six brokerages - CITIC Securities, Guotai Junan Securities, Haitong Securities, Guosen Securities, Everbright Securities and GF Securities.
The securities regulator has chosen 90 companies listed on the mainland as target stocks for the program, covering the top 50 Shanghai-listed firms by market value and the top 40 Shenzhen-listed firms.
"The launch of margin trading will shore up demand for blue chips and increase their liquidity premium," said Qin Xiaobin, an analyst at Galaxy Securities Co.
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