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China Securities Regulate Margin Finance, Investors Remain Unfazed

Investors have shrugged off yet another effort by the securities regulator of China so as to regulate margin finance, which is a fast growing type of securities lending, pushing the Shanghai market for a 7-year high.

At a Friday’s news conference, China’s Securities Regulatory Commission (CSRC) stated that it has implemented sanctions such as bans on opening new margin-financing accounts and enhanced internal compliance requirements onto 6 midsized securities firms.

One of the major drivers for China’s bull market includes the purchasing of stocks with borrowed money. However, investors were spooked by Shanghai’s 7.7% tumbling shares, the worst one-day decline within over 6 years. But, investors seemed to be unfazed regarding the latest decision of CSRC. On Tuesday, stocks extended their latest rally, following a holiday Monday. Investors have pinned their hopes on more support from regulators as the Shanghai Composite Index reached its highest closing level ever since March 14 of 2008, rising 2.5% to its highest closing at 3961.38.

The decision affected some brokerages such as Huaxi Securities, Great Wall Securities Co., Guosen Securities Co., Huatai Securities Co., Minmetals Securities Co., and the China International Capital Corp. that were accused of some irregularities, like offering margin finance and with corresponding penalties. On Friday, the overall margin finance value reached $250.30 billion or 1.55 trillion yuan, similar to a January incident that also banned 3 leading brokerage firms.

Image credit : WSJ.com