China Regulators Ban Derivatives For Financing Stock Purchase

admin — Sat, 28 Nov 2015 22:21:39 +0000

(Bloomberg) — The Securities Association of China will ban brokerages from offering financing for stock market trading using derivatives, the country’s securities regulator said.

Brokerages should provide funding to their clients using margin trading tools that comply with the rules, China Securities Regulatory Commission spokesman Zhang Xiaojun said Friday at a briefing. Swaps offered by some brokerages have deviated from their role as a risk management tool, instead becoming a way to offer unofficial margin loans for investors, Zhang said.

China’s regulators are attempting to prevent another build up of leverage in the stock market similar to the borrowing binge that took place earlier this year and helped propel the boom and then bust in Chinese share prices. Earlier this month, the country’s two mainland stock exchanges doubled margin requirements to 100 percent in another move to limit leverage in the market.

“After the stock market rout, regulators have a new understanding about leverage,” Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research, said by phone. “Their measures have been focusing on deleveraging and reducing risk and this policy stance should continue. The regulators will be more conservative and prudent than before.”

Zhang was confirming a report Thursday in Caixin magazine, which said China’s brokerages were told to wind down the business of offering total return swaps, a type of over-the- counter derivative, for clients who want to trade stocks.

At the end of October, the over-the-counter derivative businesses of 39 brokerages had an outstanding nominal value of 279 billion yuan ($43.7 billion), according to data from the Securities Association of China. Of that, swaps accounted for 44 percent by value, while options contracts accounted for the rest.

The amounts involved in the swaps compare to China’s official margin finance balance of more than 1.2 trillion yuan.

The total return swaps can offer three to five times leverage because the investor pays only a deposit to the broker and then a fixed-interest payment at the end of the contract, in return for receiving a floating return on the stocks.

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China Freezes IPO Market In Effort To Stem Sell-Off

admin — Sun, 05 Jul 2015 15:49:25 +0000

BrokerDealer.com special news update: In an effort to stem the recent plunge in prices of stocks listed on Chinese stock markets, this weekend the Shanghai and Shenzhen stock exchanges issued notices suspending initial public offerings (I.P.O.s) until further notice.

The government-controlled Securities Association of China has instructed brokerdealers from 21 of the major brokerage firms to set up a nearly US$20bil fund (120 billion renminbi) that will be used to support stock prices by buying shares in China’s largest and most stable companies.

Separately on Saturday, 25 Chinese mutual funds claimed they would also put more money into shares. Although fund managers did not reveal the exact amount, they noted that they would be investing their own funds.

Saturday’s halt to IPOs could freeze large amounts of cash and dry up liquidity in the market, thus contributing to its stabilization, as large IPOs have been named one of the main factors triggering the current decline.

Brokerdealer.com provides a global database of broker-dealers operating in more than 3 dozen countries, including brokerage firms based in Hong Kong.

The government has already taken a number of measures over the past week, including cutting interest rates, relaxing margin-lending rules, and adding bank liquidity, so far without any success in reassuring investors.

The Asset Management Association of China pledged to halt additional stock investments for at least a year, and later to accelerate the issuance of share funds after the freeze.

The IPO freeze will last until the Shanghai composite index reaches 4,500 points, Reuters reports. On Friday, the index fell by 5.8%, ending at 3,684 points.

The post China Freezes IPO Market In Effort To Stem Sell-Off appeared first on BrokerDealer Blog.

BrokerDealer Blog » Securities Association of China

China Regulators Ban Derivatives For Financing Stock Purchase

(Bloomberg) — The Securities Association of China will ban brokerages from offering financing for stock market trading using derivatives, the country’s securities regulator said.

China Freezes IPO Market In Effort To Stem Sell-Off

BrokerDealer.com special news update: In an effort to stem the recent plunge in prices of stocks listed on Chinese stock markets, this weekend the Shanghai and Shenzhen stock exchanges issued notices suspending initial public offerings (I.P.O.s) until further notice.