BrokerDealer.com blog update profiles the challenges of getting short shares listed on the Shanghai Stock Exchange, courtesy of extract from 06 March WSJ report by Gregor Hunter “Bejing Comes Up Short With Stock Bets”
A week after China allowed foreign investors to bet against shares on the mainland, no one had taken up the challenge. Industry officials say the rules that govern how the short selling should be done make it nearly impossible to bet against the stocks.
The opening of Chinese shares to short selling came as part of the Shanghai-Hong Kong Stock Connect, which gives foreign investors unprecedented access to China’s main stock market in Shanghai. The connection opened in November and trading volume has been weak in its initial months.
Regulators approved short selling via Stock Connect beginning on Monday, and no shares were sold short during the first week of trading, according to data from the Hong Kong Stock Exchange.
Asked whether Stock Connect currently permits short selling of shares, Andy Maynard, global head of trading and execution services at CLSA said: “In theory, yes it does. In practice, no it doesn’t.”
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According to the Stock Connect rules, shares must be loaned out by exchange participants, which generally means brokers. But they typically don’t have shares to lend, instead those shares generally come from custodians or asset managers. And loans of shares between companies—even if they are affiliates of the same bank or fund manager—are prohibited.
“There’s no way you can get the stock into the exchange participant account for that exchange participant to be able to lend to the Street,” CLSA’s Maynard said.
Hong Kong Exchanges and Clearing chief executive Charles Li said that he didn’t know why no shares were shorted in the first week, but that the exchange was “not concerned”.
He acknowledged that the rules made it difficult to short in China. “Only brokers and broker affiliates can participate. If they’re not able to lend, there’s not a lot of shares to borrow from,” Mr. Li said
For the full story from the WSJ, please click here
