China increases scrutiny of margin trading to prevent another 2015 meltdown
Mar 15, 2019 (China Knowledge) - China’s stock market regulator is increasing its scrutiny of leveraged buying of stocks funded by non-brokerage platforms as it seeks to prevent a repeat of the 2015 meltdown of the Chinese stock market.
Branches of the China Securities Regulatory Commission (CSRC) in Zhejiang and Guangdong have already held meetings with securities firms to request them not to offer services that can enable external institutions to loan money to investors for trading or investment purposes.
In addition, Brokerages have also been banned from cooperating with external funding platforms in any business deals and should increase scrutiny of accounts with unusual trading activity.
The Securities Association of China which is the industry body of Chinese brokerages has also had a meeting with major brokerages to look upon the past mistakes of 2015 which led to the crash and to prevent any such repeats by stepping up surveillance of illegal margin trading.
A surge in leveraged stock purchases funded by unregulated platforms was identified to be a cause of the 2015 meltdown and with expectations of a pickup in economic growth, optimism about reaching trade deal and relaxations on stock trading, there are fears that the recent rally be once again bring about such unregulated margin trading.
However, margin trading funded by China’s licensed brokerages still look to be at a safe level with an outstanding balance of RMB 880 billion on Wednesday, 61% below the peak in 2015.
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