China securities regulator suspends restricted share lending from Monday

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© Reuters. FILE PHOTO: A Chinese national flag flutters outside the China Securities Regulatory Commission (CSRC) building on the Financial Street in Beijing, China July 9, 2021. REUTERS/Tingshu Wang/File Photo
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SHANGHAI (Reuters) -China’s securities regulator said on Sunday that it will fully suspend the lending of restricted shares effective from Monday, in policymakers’ latest attempt to stabilise the country’s stock markets following recent sharp falls.

A string of supportive policies by Beijing including a deep cut to bank reserves helped lift Chinese stocks off 5-year lows early last week but they retreated again on Friday, reflecting deep investor pessimism over the outlook for markets and the shaky economy.

Analysts and investors say Beijing needs to roll out more support measures to revive consumer and business confidence and get activity back on a more solid footing.

Restricted shares are often offered to company employees or investors with certain limits on their sale, but they can be lent to others for trading purposes, such as short-selling, which can add pressure on markets during a prolonged slump.

Sunday’s move will “highlight fairness and reasonableness, reduce the efficiency of securities lending, and restrict the advantages of institutions in the use of information and tools, giving all types of investors more time to digest market information and creating a fairer market order,” the China Securities Regulatory Commission (CSRC) said a statement published on its official WeChat account.

The CSRC added that the move would “resolutely” crack down on illegal activities that use securities lending to reduce holdings and cash out.

The regulator also said it will limit the efficiency of some securities lending in the securities refinancing market from March 18.

Last October, the CSRC restricted securities lending businesses and tightened scrutiny of improper regulatory arbitrage by imposing higher margin requirements.

China’s stock market tumbled in 2023 and has extended its slide in the new year. Though the blue-chip CSI300 Index has recovered some ground, it still down about 3% year-to-date.

Small Chinese investors are scrambling even harder than foreigners to exit the crumbling stock markets, sending premiums on global index funds skyrocketing as they search for exposure to anything but the sputtering domestic economy.

China’s economy grew 5.2% for 2023, slightly above the government’s target, but the comparison was flattered by a weak, lockdown-hit 2022 and the recovery has been highly uneven.

December data showed lacklustre consumption and the fastest fall in home prices for nine years, with the property market in a deep crisis.

Both Shanghai and Shenzhen stock exchanges said they will suspend securities lending by strategic investors during lockup periods, effective from Jan. 29.