China has launched a pilot securities margin trading program, allowing - for the first time - for brokerages to borrow money to re-lend to their clients to conduct margin trading.
It's hoped the move is the next step in developing China's caiptal markets. It also comes at a time when the country’s two stock markets, Shanghai and Shenzhen, have been mired in a sustained slump.
According to the announcement released on Monday, 11 brokerages which have joined the existing program have already been selected to conduct the relending business. They will first start with borrowing money for the relending business, and then expand it to borrowing stocks once they are more familiar with the new business.
China’s first ever securities margin trading was launched in 2010, and analysts expect the new reform to significantly boost the capital volume in the country.
Xu Guangfu, analyst, Xiang Cai Securities, says, "The main difference is that the source of the borrowed money and the stocks has changed. In the previous margin trading and short selling scheme, the borrowed money and stocks were still from the securities company itself. It is limited by the scale of the security company. But now, the new business allows them to greatly expand their sources of borrowed money and stocks."