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In order to further strengthen the risk management for securities margin trading and promote its long-term stable development, as approved by China Securities Regulatory Commission (“CSRC”), Shanghai Stock Exchange (“SSE”) and Shenzhen Stock Exchange (“SZSE”) recently amended the Implementation Rules for Securities Margin Trading (“Implementation Rules”), and increased the lowest margin ratio for securities margin trading from 50 percents to 100 percents. The adjustment will be implemented from 23 November, 2015.
Margin ratio for securities margin trading refers to the ratio of margin paid by investors in securities margin trading and margin trading amount. It decides the leverage ratio of securities margin trading. For example, if it is 50 percents, customers may borrow at most RMB2 million from securities companies to buy securities with the margin of RMB1 million, and the leverage ratio of the trading is two. However, if it increases to 100 percents, customers may borrow at most RMB1 million from securities companies to buy securities with the margin of RMB1 million, and the leverage ratio of the trading is one.
As the market turns around recently, financing scale and turnover of stock trading rapidly rise again, some customers tend to purchase rising stocks, and there is a large amount of high-risk stocks with high rise rate or PE ratio bought in through financing. In order to actually protect investors’ legal rights and prevent systematic risks, it’s necessary to implement countercyclical adjustment, increase margin ratio for securities margin trading and properly decrease leverage level, so as to promote the sustained and healthy development of the market.
The adjustment is only applicable to new securities margin trading contracts, those securities margin trading contracts established before the implementation of adjusted Implementation Rules are continuing to be implemented according to relevant regulations before the adjustment. Investors needn’t add any margin or close any position for the adjustment, the existing securities margin trading contracts may be renewed according to relevant regulations and contractual stipulations.
