China Imposes New Restrictions on Short-Selling and Program Trading to Boost Stock Market

China’s securities regulator has introduced additional limitations on short-selling and promised heightened oversight of computer-driven program trading in a bid to strengthen a sluggish stock market.

Short-selling, a practice of selling borrowed shares, is frequently criticized in China for exacerbating market downturns. The China Securities Regulatory Commission (CSRC) disclosed that securities re-lending, which involves brokers borrowing shares for clients to engage in short selling, will be halted. Meanwile, margin requirements for short-sellers will be increased.

The CSRC has urged stock exchanges to issue comprehensive regulations to oversee program trading, particularly high-frequency trading. These new directives follow seven consecutive weeks of declines in China’s blue-chip CSI300 index, raising concerns about the country’s economic well-being.

Since last August, China has implemented various measures to discourage short-selling, with the latest actions being a response to investor worries and an effort to stabilize the market, as per the CSRC statement.

Starting Thursday, the suspension of new securities re-lending will be in effect, with existing contracts set to expire by the end of September, as per the regulator’s announcement.

Furthermore, stock exchanges will raise the minimum margin requirement ratio for short-selling from 80% to 100%, with a higher threshold for hedge funds, as outlined by the CSRC. The regulator also disclosed plans to impose stricter limits on high-frequency trading to ensure equitable market conditions.

According to the watchdog reports, as of the end of June, high-frequency trading accounts have decreased by over one-fifth this year to approximately 1,600.