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21st Century Business Herald reporter Yi Yanjun reports from Guangzhou

On July 22, the stock exchange officially raised the margin ratio for margin trading.

According to the notice issued earlier, from July 22, when investors sell short, the margin ratio for short selling shall not be less than 100%. Among them, if the investor is a private securities investment fund, the margin ratio for short selling shall not be less than 120%.

Not long ago, with the approval of the China Securities Regulatory Commission, China Securities Finance Corporation has suspended its securities lending business from July 11, 2024.

"The measure of increasing the margin ratio for securities lending, which complements the suspension of securities lending business, is the most needed 'double pressure on short positions' at the moment. For incremental short-selling securities lending funds, the potential costs and pressures will continue to increase, and the scale of securities lending will inevitably be further reduced. This will become a double guarantee for jointly building market stability. This move effectively curbs possible excessive speculation in the market and guides investors to turn to more rational value investment." Chen Xingwen, chief strategy officer of Heisaki Capital, pointed out to the 21st Century Business Herald reporter.

It is worth mentioning that since the China Securities Regulatory Commission strengthened the supervision of securities lending and securities lending business in August last year, the scale of securities lending and securities lending in the entire market has continued to decline.

According to WIND statistics, as of July 19, the balance of A-share margin lending had dropped to 29.2 billion yuan, a decrease of about 59% from 71.6 billion yuan on December 29, 2023, and a new low since July 2020; the balance of securities lending was about 26.4 billion yuan, a decrease of about 76% from 110.4 billion yuan on December 29, 2023.

Refine the rules

On July 10, the China Securities Regulatory Commission announced that it had approved stock exchanges to increase the margin ratio for short selling. After that, various securities firms gradually refined the relevant business rules.

On July 17, Shenwan Hongyuan Securities announced that the company decided to adjust the margin ratio for investors' short selling from July 22, 2024. The details are as follows: When investors sell short, the minimum margin ratio for short selling is adjusted to 100%. Among them, if the investor is a private securities investment fund, the minimum margin ratio for short selling is adjusted to 120%.

At the same time, Shenwan Hongyuan Securities stated that for short selling contracts that have not been settled before July 22, the short selling margin ratio requirements will still be implemented in accordance with the original ratio requirements. For short selling contracts that have not been settled before this adjustment and are subsequently extended, the short selling margin ratio will be implemented in accordance with the new ratio requirements. At the same time, for customers who set a differentiated short selling margin ratio, the lower limit of the short selling margin ratio shall not be lower than the latest regulatory standards.

CITIC Securities also separated its securities lending business clients into new and old ones.

On July 18, CITIC Securities issued the "Announcement on Adjusting the Margin Ratio for Short Selling."

CITIC Securities has made two adjustments to the short selling margin ratio for investors: First, if the investor is a private securities investment fund, the short selling margin ratio applicable to new short selling contracts opened on or after July 22, 2024 will be adjusted to 120%; for short selling contracts opened on or before July 21, 2024, if the short selling margin ratio is lower than 120%, and the original expiration date of the contract is on or after July 21, 2024, the short selling margin ratio of the aforementioned contract after the extension will be adjusted to 120% from the first trading day after the original expiration date of the contract.

Second, the short selling margin ratio applicable to short selling contracts newly opened by other investors on or after July 22, 2024 will be adjusted to 100%; for short selling contracts opened on or before July 21, 2024, if the short selling margin ratio is lower than 100%, and the original expiration date of the contract is on or after July 21, 2024, the short selling margin ratio of the aforementioned contract after the extension will be adjusted to 100% on the first trading day after the original expiration date of the contract.

"The above margin ratio adjustment will affect the available margin balance in investors' credit accounts. Investors are kindly requested to be aware of this," said CITIC Securities.

In addition, GF Securities also announced the latest version of "Securities subject to short selling - Margin Ratio Details" on July 22, and noted: If the investor is a private securities investment fund, the short selling margin ratio must not be lower than 120% when short selling.

Stabilizing the market

Regarding the recent arrangement to suspend securities lending business and increase the margin ratio for securities lending, Yao Xusheng, a financial planner at Paipai.com, pointed out to reporters that this is an important measure taken by the regulatory authorities to maintain market stability and has brought many positive impacts to the stock market.

Yao Xusheng analyzed that, first, the relevant measures show the attitude of the regulatory authorities to stabilize the stock market, which is conducive to boosting investor confidence and may promote a rebound in the market. Second, the suspension of the securities lending business means that new short-selling forces have decreased. Investors in the market who have previously shorted but have not yet returned the securities will face the deadline of September 30 and may gradually buy back the stocks, thus turning into long-selling forces. Third, the suspension of the securities lending business can put different market participants on the same starting line and improve market fairness; increasing the margin ratio for securities lending will increase the cost of short selling, help curb excessive securities lending behavior, and reduce the market's short selling pressure. Fourth, with the decline in the scale of securities lending and securities lending, the proportion of securities lending scale in the A-share circulating market value will decrease, and the proportion of daily securities lending sales in the A-share turnover will decrease, and the negative impact on the market will gradually weaken.

In addition, the Huachuang Securities Finance team believes that raising the margin ratio for securities lending is an important counter-cyclical adjustment measure for securities lending business, which reflects the regulatory authorities' continuous monitoring and timely response to market risks. "Raising the margin ratio for securities lending increases the securities lending transaction costs of investors and reduces the leverage level of securities lending transactions, thereby easing market sentiment and reducing market volatility, which can promote the healthy development of the capital market.

In fact, since the beginning of this year, the scale of securities lending and securities lending has shown a continuous downward trend.

Wind statistics show that as of July 19, the total market margin balance was 29.197 billion yuan, a decrease of about 59% from the end of 2023, and the margin balance accounted for 0.04% of the A-share market value; the total market transfer margin balance was 26.356 billion yuan, a decrease of 76% from the end of 2023.

At the same time, the average daily short selling amount of the entire market in June 2024 was 1.626 billion yuan, accounting for only 0.22% of the average daily trading volume of A-shares that month, a decrease of 0.38 percentage points from the whole year of 2023.

From the perspective of individual stocks,As of July 22, there were only 23 stocks with margin lending balances exceeding 100 million yuan.Among them, the top ten stocks with the largest securities lending balances are Pianzihuang, Wantai Biological, Haiguang Information, United Imaging Healthcare, Bank of Nanjing, BAIC Blue Valley, Aimei Technology, Longi Green Energy, Vanke A, and Aier Eye Hospital, and the corresponding securities lending balances are 378 million yuan, 289 million yuan, 283 million yuan, 257 million yuan, 252 million yuan, 241 million yuan, 223 million yuan, 209 million yuan, 199 million yuan, and 194 million yuan, respectively.

Long-short strategy funds face challenges

On the other hand, the implementation of the new regulations will bring new challenges to some fund products.

Yao Xusheng said,For long-short strategy funds, an increase in the margin ratio for short selling means an increase in the cost of short selling and a reduction in the demand for short selling, thereby suppressing the short selling force in the market.

Yao Xusheng said that first, the increase in the margin ratio for securities lending means that funds need to provide more margin to participate in securities lending transactions, which increases costs. Secondly, securities firms may need to stockpile securities sources in advance to cope with the new regulations, which may increase the difficulty of obtaining securities sources and thus affect the execution of long-short strategies. At the same time, higher margin requirements prompt funds to pay more attention to risk management to avoid being forced to close positions due to insufficient margin. Long-short strategy funds need to adjust their investment strategies to adapt to the new margin requirements, reduce the scale of securities lending or turn to other hedging methods. In addition, due to the increase in the cost of securities lending, the expected returns of long-short strategy funds may decline, and fund managers need to develop new strategies to maintain or improve investment returns.

Chen Xingwen also pointed out that the adjustment of the margin ratio for securities lending will directly affect the operating strategy and risk management of long-short strategy funds.Long-short strategy funds usually hedge risks by holding long and short positions at the same time to gain profits from market fluctuations. Increasing the margin ratio for securities lending may limit the short-selling ability of these funds and reduce their hedging efficiency, thus significantly affecting their overall investment returns and risk control.。”

In addition, an ETF fund manager said in an interview with the media:The securities lending business of the repo is an important source of ETF revenue. The A-share market has a strong demand for securities lending of small and medium-sized market value targets, so the scale of small and medium-sized index funds such as CSI 500, CSI 1000, and Science and Technology Innovation Board participating in the repo is relatively large. The suspension of the relevant business may have a slightly greater impact on such funds.