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To further improve the business structure of Margin Trading and Securities lending, strengthen the management thereof, and facilitate the long-term and stable development of Margin trading and Securities Lending, Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE), with the approval of China Securities Regulatory Commission, amended Implementation Rules on Margin Trading and Securities Lending, and adjusted the requirement for conversion rate of mortgaged securities, turning the conversion rate of those stocks with static P/E ratio of more than 300-fold or stocks with negative static P/E ratio as 0. Meanwhile the two stock exchanges will expand the scope of underlying stocks for margin trading and securities lending, incorporating 950 underlying stocks instead of the existing 873 stocks. The number of underlying stock will expand from 485 to 525 on SSE, and expand from 388 to 425 in SZSE. The above adjustment will be effective as of December 12, 2016.
Conversion rate of mortgaged securities refers to the ratio of mortgaged securities converted to margin. Securities company will take a proportion of margin when lending money or securities to clients for margin trading and securities lending. In addition to cash, the margin could be substituted by stocks of listed companies, securities invested fund, bond money market funds. Conversion rate of mortgaged securities determine the amount of margin would be converted by the mortgage securities submitted by the investors.
After the adjustment to the conversion rate, the stock with static P/E ratio of more than 300-fold and stock with loss performance will not be converted as margin. According to the dividing principle of new and old rules, investors, whose contract open before the implementation of new rules (before the market close on December 9, 2016) , do not need to close a position or increase margin for the lack of margin due to the adjustment of the rules, and could handle the extension of the contract according to relevant regulations and stipulation of contract. At the same time, to facilitate the actual operation, both SSE and SZSE require the securities companies to adjust to the conversion rate of the mortgage securities in line with static P/E ratio on the last trading date of every week, with the adjusted conversion rate coming into effect on the next trading day. After the adjustment to the conversion rate of mortgage securities, the quality of guaranty will be improved and the risk of margin trading and securities lending business will be further lower down. The adjustment, guiding investors to the rational investment and value investment, is thus beneficial to enhance margin trading and securities lending and sound and stable development of capital market.
Underlying stock refer to the stocks traded in margin trading and securities lending. As stipulated on the Implementation Rules on Margin Trading and Securities Lending, the stock exchanges should determine the underlying stocks according to the gradual expansion principles of from stick to loose, less to more, and disclose to the market.
Before this, the stock exchanges have expanded the scope for underlying stocks for 4 times. This time, 77 underlying stocks will be included in the scope of underlying stocks. The newly selected underlying stocks are mainly stocks of low PE ratio, with large circulation market value, of active trading, and with stable market performance. The expansion of the scope of underlying stocks, with larger coverage of underlying stock, thereof satisfy the diversified investment needs of the investors.
Matching with the adjustment, SSE and SZSE will establish a regular assessment adjustment mechanism for underlying securities, conducting two-way adjustment to the underlying securities at the end of every quarter, removing the unqualified underlying securities and add in the eligible and high quality underlying securities, so as to maintain the stability of the number of underlying securities and optimize the structure of underlying securities, lower down the risk for investors.
