As noted earlier, while tens of thousands of Bloomberg terminal users were twiddling their thumbs during an outage that lasted several hours, China futs crashed.
There was some confusion about the cause of the rapid move, but it appears the catalyst was an announcement by the China Securities Regulatory Commission in which it allowed fund managers to lend shares for short-selling, and will also expand the number of stocks investors can short sell, in a bid to raise the supply of securities in the market.
Reuters has more:
Investors now face difficulties borrowing stocks for sale, even with some companies trading at lofty valuations.
China's shares posted seven weeks of gains, reaching seven-year highs on Friday, as retail investors rushed to open stock accounts and borrow a record amount of money to buy shares, pushing trading turnover to record highs.
Institutional investors including mutual fund companies and asset management businesses of securities firms are encouraged to lend stocks because the "margin financing business has been growing rapidly, but the business of short-selling has been developing slowly," the Shanghai and Shenzhen stock exchanges said in a statement.
The type of stocks that investors can short sell will also be expanded soon to 1,100, from 900 currently.
Some promptly interpreted this as a blessing by the authorities to short stocks and acted accordingly. "This is a combination of actions that is negative to the stock market," said Shen Zhengyang, Shanghai-based analyst at Northeast Securities.
"With index futures to hedge against risks, institutions would be willing to lend stocks for interest income."
In other words, in its rapid push to "modernize" its stock trading, China totally forgot to fully implement the infrastructure to enable shorting. No wonder it "doubled" the value the Shanghai Composite over the past year.
Anyway, it seems that the infrastructure to short stocks has finally been enabled.
What happens next? Shen added that a correction in Chinese stocks "is unavoidable", given the rich valuations of some stocks.
The China's securities regulator warned as much, when during a conference held earlier today, it cautioned investors of market risks. "Some investors have insufficient understanding and alertness of market risks," Deng Ge, spokesman of the China Securities Regulatory Commission said. "I want to remind retail investors: invest rationally, and always treat the market with awe."
Below is the full google translated press conference:
April 17, 2015, the Commission held a news conference, spokesman Deng Ge informed securities companies to carry out margin trading business, the Commission issued a record number of class cancellation and adjustment issues, the Financial Supervisory Commission and Poland Bureau signed a "Memorandum of Understanding on the Securities and Futures Regulatory Cooperation", also reported recently for the new three-panel market in enforcement cases (see above is the official website news section), while answering a reporter's question.
Q: It is said that the Securities Industry Association, the fund industry association, the Shanghai Stock Exchange, the Shenzhen Stock Exchange issued a "trading business on the promotion of the development of the matter," which is true?
A: Yes. These four units according to the Commission, "the margin trading business management approach", jointly developed and published notice, primarily to promote the healthy development of the trading business. Margin trading business in March 2010 launched a pilot project, in November 2011 into the routine. In recent years, the rapid development of finance, development and trading business is slow. To facilitate financing and trading business coordinated development, the Securities Industry Association, the fund industry association, the Shanghai Stock Exchange, the Shenzhen Stock Exchange has taken the following measures:
- First, the support professional institutional investors to participate in margin trading, short selling coupons expand sources.
- Second, the introduction of market-based trading agreement transfer methods of reporting, facilitate securities trading company to carry out business according to customer demand, to achieve the two sides agreed borrowing rates independent, duration and other matters.
- Third, optimize short selling trading mechanism and improve transaction efficiency, allowing short selling ETF's declared value may be lower than the latest price, margin selling price can be used to buy or purchase the Exchange approved the high mobility of securities .
- Fourth, give full play to the role of regulating the market trading business, will soon expand margin trading and margin trading of the underlying securities transferred to 1100.
- Fifth, strengthen trading business risk control, and effectively guard against business risks.
Meanwhile, the fund industry associations and the Securities Industry Association is also supporting the release of the "fund participation margin and securities lending business refinancing guidelines," according to the law raised funds to support participation in the margin, refinancing business, and information disclosure, risk control forth requirements.
Securities companies, fund companies should be based on their capital strength and risk management capabilities, actively and steadily involved in trading business. Each self-regulatory organization shall take effective measures to simplify procedures, improve efficiency, to further improve the margin trading convenience.
Q: Recently, the Hong Kong stock market is hot, there have been cases through Hong Kong stocks daily limit exhausted, what regulators consider whether to adjust the Shanghai and Hong Kong through credit?
A: According to the joint announcement, I will work with the SFC in April 10, 2014 release, the two sides can be adjusted according to the amount of investment pilot program. I will be in conjunction with the Hong Kong close attention to market dynamics, research and feasibility studies on related matters.
Q: Recently, the stock market continued to rise, a lot from all walks of life, different backgrounds, investors run the market, does the Commission have any comment on this "national stocks" craze?
A: The problem you mentioned, we have been concerned. Since the start of the second half of last year, especially since 2015, the territory was a rising trend in the stock market, has attracted more and more investors to participate in the stock market in the past. According to the Chinese settlement statistics, the first quarter of 2015, the new stock accounts grew 433%, reaching more than 795 million, of which 80 became the main force, accounting for 62% of people over age 55 have a certain percentage, up 5.2%; Look from holding more than 90% market shares below $ 500,000 account. Investors trading activity, 41.18 trillion yuan cities transaction amount, up 238.4%, which accounted for the transaction amount of natural investors for over 80% of turnover amounted to 100.7%, an increase of 67.2%.
Investors eager to enter the market, shows that we are confident of China's securities market, hoping to share the fruits of reform and innovation and economic growth by investing in the stock market, but many new investors make money in stocks could only see, ignoring the risk of losing money in the stock market, the stock market Change lack of experience and feelings, the stock market risk of the lack of sufficient awareness and vigilance. For this reason, to remind the majority of investors, especially small investors new market, to do your homework, rational investment, respect for the market, the fear of the market, keep in mind that stock market risk, capabilities, and not to be "selling stocks on the market, to borrow stocks "misled remarks, do not blindly follow the trend of speculation.