China implements strict restrictions on short selling and quantitative trading to stabilize stock market
From West Island Blog: 2024-07-11 02:44:18
China’s tough new restrictions on short selling and quantitative trading aim to stabilize its stock market ahead of an economic policy meeting. The move includes raising margin requirements, halting securities lending, and increasing margin deposits for short selling. While these actions have led to a short-term boost, concerns persist over the market’s long-term benefits.
Analysts believe that China, South Korea, and Thailand’s aggressive measures against short sales and quantitative trading may not fully address underlying issues like housing concerns and low consumer confidence. Despite the recent gains in Chinese stocks, ongoing challenges remain, with experts suggesting limited long-term impacts from the crackdown on short sellers.
President Xi Jinping’s upcoming Third Plenum underscores expectations of limited stimulus initiatives. Major firms predict that existing measures might be expanded instead of new initiatives. The latest rules require higher margin deposits for short selling and stock lending, which could prompt the closures of existing short positions.
The CSRC’s recent actions aimed at curbing short selling reflect a trend under Chairman Wu Qing, who has increased oversight of quantitative funds since February. Beijing’s focus on mainland-to-Hong Kong trading links and supervision reflects a push for market stability. Additional charges for high-frequency trading transactions and the drop in high-frequency trading accounts further indicate a tightening regulatory environment.
Since the restrictions imposed in February, short selling in China has significantly decreased. The number of short trades and securities lending has dropped sharply, with their share in the market’s total value at just 0.05%. While these measures may boost sentiment, they could increase costs and hinder long-short strategies’ performance, according to analysts.
Read more at West Island Blog: China Tightens Grip on Short Selling to Stabilize Market