CSRC: Margin trading not to cause plunge of A-share

16:23, February 01, 2010      

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China Securities Regulatory Commission (CSRC) stated January 31, "Launching margin trading will not cause the market to plummet," elaborating on the hot topics related to margin trading for the first time.

Last week, the Shanghai Composite Index dropped below the 3,000 mark, leading to various intensifying concerns about the A-share market. If margin trading is launched, the current unilateral A-share market in which investors can only make profits by buying low and selling high, will develop into a bilateral market in which investors can also profit from short-selling. Numerous investors are concerned that this will attack the already vulnerable market.

The CSRC clearly stated, "Margin trading will help the capital market better play its price-discovery role, and enhance the efficiency of the capital market. The permission of short-selling means that investors may make investments according to target companies' operating results and growth potential, moving closer to value investments. The market will therefore not plummet due to the launch of the margin trading."

The CSRC said that presently, the qualified participants of the margin trading business are limited to only pilot securities companies and are unlikely to create much influence on the industry. The professional evaluation on securities companies is expected to be completed by March and will be the basis on which the CSRC will comprehensively review the applications of securities companies.

The trading volume of the margin trading business in foreign countries generally accounts for about 20 percent of the total market trading volume. A certain percentage or even half of securities companies' revenues comes from loan interests which helps them improve the use of capital funds and expand business.

An official from the CSRC said, "In the future, margin trading will become the common business of China's securities companies. After the full development of the margin trading business, it is likely to lead to an appropriate adjustment to the business model of the securities industry."

By People's Daily Online
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