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Upon approval by the China Securities Regulatory Commission, the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) have revised the “Detailed Rules for Implementation of Margin Trading and Securities Lending” and adjusted the requirement for relevant conversion rate of qualified securities offsetting margin (The conversion rate of any stock with static price-to-earnings ratio higher than 300 times or minus was adjusted to 0%), in a bid to further improve the structure of the margin trading and securities lending business, cement the management and propel the long-term steady development of the business. Besides, the two exchanges have expanded the scope of the underlying stocks for margin trading and securities lending to 950 underlying stocks from the existing 873 ones, among which 485 underlying stocks on the SSE were increased to 525, and 388 ones on the SZSE increased to 425. The above adjustments shall come into force on December 12, 2016.
Conversion rate of qualified securities offsetting margin is the rate for the securities that could be taken as margin to be converted into a sum of margin. A securities company charges a sum of margin from its client when it carries out the margin trading and securities lending business. Apart from cash, the margin could be offset by securities such as listed stocks, securities investment funds, bonds and money market funds. The conversion rate of qualified securities offsetting margin decides the margin amount that could be converted by the qualified securities submitted by investors.
After the adjustment to the conversion rate, any stock with static price-to-earnings ratio above 300 times or suffering losses in its business performance could not be converted as the margin for margin trading and securities lending. In the principle of drawing a line between the present and the past, for the contracts with positions opened before implementing the new rule (before market closure on December 9), an investor need not to close out a position or add margin resulted from the insufficient margin triggered by the rule adjustment this time, and it may roll over its contract according to relevant regulations and contract stipulations. Besides, for the convenience of actual operation, the two exchanges both require securities companies to adjust the conversion rate of qualified securities offsetting margin according to the stock’s static price-to-earnings ratio after the market closure on the last trading day every week (The adjusted conversation rate shall be implemented on the next trading day). The adjustment to the conversion rate could improve the quality of collaterals for margin trading and securities lending, further lower the risk of the margin trading and securities lending business, guide rational investment and value investing and further boost the sound and steady growth of the margin trading and securities lending business and the capital market.
Underlying stock is the stock that could be used for margin trading and securities lending. According to the “Detailed Rules for Implementation of Margin Trading and Securities Lending” of the SSE and the SZSE, the exchanges will, in the principle of from strictness to slackness, from few to many, and expansion step by step, decide the list of underlying stocks and publish it to the market.
Previously, the two securities exchanges have expanded the scope of underlying stocks for 4 times. The 77 stocks added this time are those characterized by low price-to-earnings, high floating market capitalizations, brisk trading and stable market performance. The expansion of underlying stocks will further expand the coverage of underlying stocks and meet diversified investment needs of investors.
Moreover, the two exchanges will set a periodical appraisal and adjustment mechanism of underlying securities, make a two-way adjustment to underlying securities at the end of every quarter, namely, timely deleting unqualified underlying securities and ushering in qualified ones for maintaining the steady amount of underlying securities, and optimize the structure of underlying securities for investors’ risk control.
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