Brokerages become lenders in bid to boost sagging Shanghai market
Updated: 2012-09-07 06:51
By Shi Jing(HK Edition)
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Securities regulators have been coming up with good news in bundles lately in the hope of lifting the ever dwindling stock market.
The China Securities Regulatory Commission put up a notice on August 27, allowing the Shanghai and Shenzhen stock exchanges to start a program under which securities brokerages may re-lend borrowed money and securities for the purpose of financing trading on margin. The Commission instructed the stock exchanges to choose the right time to launch the program, initially on a trial basis.
Under this program, securities companies are allowed to re-lend money and securities borrowed from lenders, insurance companies and mutual funds to their clients involved in margin trading.
China Securities Finance Co was set up with a registered capital of 12 billion yuan ($1.89 billion) to lend to the brokerages.
Eleven securities brokerages were granted the right to engage in re-lending.
By August 15, 69 securities companies were able to conduct margin trading. The number of investors has reached 329,500, according to China Securities Finance Co. The total volume of margin trading was around 1.59 trillion yuan, with 66.4 billion yuan currently being traded.
"The re-lending business will help increase capital and securities circulating in the market as well as enhance the volatility and fluidity of the market," said Wang Zelan, general manager of the margin brokerage department of China Galaxy Securities, predicting that the margin trading market will soon grow to a volume of 200 to 300 billion yuan.
"The re-lending business is likely to bring good news to securities companies in the short-term. But from the mid and long-term view, we can only say the policy is neutral, bringing not much good or bad," said Wei Tao, chief analyst at the non-financial department of China Securities Research.
The re-lending program was given the green light at a time when the stock market has been plummeting, ever since May this year, toward the psychologically important level of 2,000 points. The benchmark Shanghai Composite Index opened lower on Aug 31, down 0.31 percent to open at 2046.29 and the Shenzhen Component Index dropped 0.01 percent to open at 8218.9.
Guangdong Securities Regulatory Bureau released a notice on August 24, urging the securities companies in the area to lower their stock trading fees. The Bureau required that transfer fees and brokerage fees be adjusted to lower commissions, which analysts believe will largely reduce investors' trading costs.
Guangdong is the first province to submit to the China Securities Regulatory Commission's edict to lower stock trading fees, which came out on June 1. More than 90 percent of the securities companies refused to carry out the policy.
From Guangdong taking the lead in lowering the fees, to postponing the pace of initial public offerings, to giving employees shares of public companies, the central securities regulators' intention to inject vitality into the stock market is even more evident.
"The next focus will be on listed companies. The regulation of these companies will come under five criteria, standard of company governance, completion of an inside control regulatory system, advancing the merger of public companies, consolidation of the returning awareness of shareholders and prevention of insider dealing," said Liu Xinhua, deputy chairman of China Securities Regulatory Commission.
shijing@chinadaily.com.cn
(HK Edition 09/07/2012 page4)