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Cailianshe News, August 5 (Reporter Yan Jun)"The data on the transfer and financing of securities lending are all virtual," "There is actually no upper limit on the amount of securities lending sales"... After the regulators completely suspended the transfer and financing of securities lending business, new short essays came again over the weekend and quickly fermented.

In response to the increasingly intense rumors, China Securities Finance started to refute the rumors at the beginning of the work on Monday. On August 5, China Securities Finance issued a solemn statement on its official website.Said the relevant statements were rumors.

"The transfer and financing data is fake" fermented throughout the weekend

Unexpectedly, rumors of securities lending resurfaced over the weekend.

Many self-media and short videos claim to have cited foreign media data, saying that "the data on the transfer and financing platform may all be fake", and have linked the recent investigation of relevant personnel in the exchange and the securities regulatory system to the transfer and financing platform. Some self-media even mentioned that "the major shareholders of securities companies and exchanges are linked to each other, and there is actually no upper limit on the amount of transfer and financing sales. Listed companies directly sell securities on margin, and after making money, they are paid directly without having to return the securities."

As soon as this statement was made, it was immediately spread in various stock exchange groups. There were many speculations, "Short lending is short selling, and short lending provides unlimited short selling chips. As long as the stock price falls, you can make more money" and "You can never buy them all."

China Securities Finance explained in two steps in its "solemn statement":

First, the securities lending business has been completely suspended.China Securities Finance Corporation said that since the second half of last year, the China Securities Regulatory Commission has taken a series of measures to strengthen supervision and counter-cyclical regulation based on market conditions and investors' concerns about the securities lending and repo business, and approved China Securities Finance Corporation to suspend the securities lending and repo business in accordance with the law on July 10 this year. Effective from July 11, the existing contracts must be settled no later than September 30.

In order to regulate market trading behavior and curb excessive market speculation, the regulatory authorities have adopted a counter-cyclical adjustment approach to securities lending. In this regard, industry insiders pointed out that the securities lending business has been completely suspended, and the existing contracts are also being gradually reduced. The current claims that "securities lending data is fake and fictitious data" have no actual basis.

Secondly, regulatory data show that the scale of securities lending and securities lending has been steadily declining.China Securities Finance disclosed the latest data showing that as of August 2, 2024, the balance of securities lending has dropped to 17.1 billion yuan, a decrease of more than 40% from before the new regulations on July 10; the balance of securities lending has dropped to 21.2 billion yuan, a decrease of more than 30% from before the new regulations.

In fact, on July 26, after the securities lending business was suspended for two weeks and the margin ratio for securities lending was increased for one week, China Securities Finance disclosed that the securities lending business showed that as of July 24, the scale of securities lending had decreased by 30% in the two-week suspension, the existing business of individual stocks had been settled in an orderly manner, and 91% of the securities lending balances had been returned. In addition, the average daily securities lending sales amount had decreased by 30% year-on-year.

From a longer-term perspective, since the regulatory authorities took action to suspend the lending of restricted shares on January 28 this year, as of August 2, the scale of financing has dropped from 94.97 billion yuan to 17.1 billion yuan, a drop of 82%.

China Securities Finance Corporation said that it welcomes investors to actively make suggestions and put forward feasible optimization suggestions. Those who create rumors and maliciously spread them on the Internet will be strongly condemned, and those who cause adverse effects will initiate legal procedures and seriously investigate the legal responsibilities of relevant behaviors.

The securities lending has been controversial for a year, and the regulator has restricted it for four consecutive times

Since the A-share market experienced a sharp correction in August last year, the securities lending business has been pushed to the forefront of public opinion. There are two reasons why it is so controversial:

First, the market continued to fall sharply, and investors were busy looking for reasons.In the past two years, the A-share market has not been profitable, and investors have been struggling to find out "who is reaping the benefits of this investment". From denouncing major shareholders for reducing their holdings, to pursuing high-frequency quantitative investment, to questioning short selling through securities lending, the search for reasons has never stopped.

Secondly, the securities lending business has certain short-selling characteristics.Securities lending has the effect of smoothing stock price fluctuations in a rising market, but in a volatile downward market, it can easily trigger speculation of short selling.

Regulators have also clearly noticed investors' sentiment, and subsequently introduced a series of policies around encouraging major shareholders to reduce their holdings, encouraging dividend repurchases, suspending securities lending, setting "red lines" for monitoring programmed trading, and reducing the frequency and speed of high-frequency trading, with the aim of improving market trading fairness and boosting market confidence.

In terms of securities lending policy, regulators have taken action on securities lending business at least four times this year.

On January 28 this year, after the China Securities Regulatory Commission increased the margin requirement for securities lending by private equity institutions from 50% to 100%, it continued to intensify its supervision over securities lending: first, on January 29, the lending of restricted shares was completely suspended; second, starting from March 18, the declaration of market-based agreements for securities lending was adjusted from real-time availability to next-day availability, which restricted the efficiency of securities lending.

On February 6, the China Securities Regulatory Commission interpreted the policy. First, it suspended the increase in the scale of securities lending, with the existing securities lending balance as the upper limit. It suspended the increase in the scale of securities lending by securities companies in accordance with the law, and gradually settled the existing stock. Second, it required securities companies to strengthen the management of customer trading behavior, and strictly prohibited the provision of securities lending to investors who used securities lending to implement intraday revolving transactions (disguised T+0 transactions). Third, it continued to increase the intensity of supervision and law enforcement, and would crack down on illegal and irregular activities such as improper arbitrage through securities lending transactions in accordance with the law to ensure the smooth operation of securities lending business.

By March 15, short selling of restricted shares was directly stopped. On March 15, the China Securities Regulatory Commission issued the "Opinions on Strengthening the Supervision of Listed Companies (Trial)", which for the first time explicitly prohibited major shareholders, directors, and senior executives from participating in derivative transactions with the company's stocks as the underlying assets, prohibited restricted shares from being transferred and lent, and restricted shares shareholders from short selling, in order to prevent the use of "tools" to bypass the reduction of holdings.

On July 10, the regulation of securities lending business was further strengthened. First, the CSRC approved the application of China Securities Finance Corporation to suspend securities lending business in accordance with the law, which will be implemented from July 11, 2024. The existing securities lending contracts can be extended, but must be settled no later than September 30. Secondly, starting from July 22, the CSRC approved the suspension of securities lending business by China Securities Finance Corporation.Stock ExchangeThe margin ratio for short selling will be increased from no less than 80% to 100%, and the margin ratio for private equity investment funds participating in short selling will be increased from no less than 100% to 120%.

In the industry's view, the continuous increase in the policy has an effect on one hand. The increase in the margin ratio for securities lending has increased the securities lending transaction costs of investors and reduced the leverage level of securities lending transactions, thereby easing market sentiment and reducing market volatility, thus promoting the healthy development of the capital market. On the other hand, the increase in the margin ratio for securities lending is in line with the implementation of the spirit of the Third Plenary Session of the 20th CPC Central Committee by the Securities Regulatory Commission, which elaborates on the overall development and security of the capital market and the use of reform methods to solve the deep-seated contradictions and problems that restrict the stable and healthy development of the capital market.