Chinese authorities have announced new rules aimed at curbing short selling. Securities regulators from the Shanghai and Shenzhen stock exchanges announced that traders who sell borrowed shares must wait until the next day to pay back their stock.
The new rules will prevent traders from selling stock and then repurchasing it the next day once price has declined. This is a practice which tends to “amplify abnormal fluctuation in stock prices and affect market stability,” said the Shenzhen bourse on its official microblog.
The new rules will prevent traders from selling stock and then repurchasing it the next day once price
has declined
“This is apparently aimed at increasing the cost of shorting and easing selling pressure on the market,” partner of Shanghai-based hedge fund manager BoomTrend Investment Management Co, Samuel Chien, said.
As Bloomberg notes, “China already bans investors who buy shares from selling them until the next day and now such intraday trading restrictions have been expanded to short sellers.” High frequency trading, which makes use of computer algorithms to determine and execute trades, will also be affected.
The new regulations come in the aftermath of China’s recent stock market meltdown in which prices dropped off by almost a third, resulting in $3trn being wiped from the market, leading authorities to step in and halt trading.
As the Chinese state press notes, “Securities watchdogs have unveiled a string of policies to shore up the market, as the benchmark Shanghai index lost 30 percent from its June 12 peak, which included suspending initial public offerings, banning major shareholders from selling, investigating into “malicious short-selling” and granting government agency liquidity to help finance stock purchases.” The new rules, known as T+1, will come into effect immediately.
