MJP –
With regulations causing downward bets in the stock market to be unwound, short selling in China has recently plunged to unprecedented levels.
At the end of July, the outstanding value of shorted stocks on the mainland’s exchange dropped to 23.2 billion yuan (approximately $3.2 billion), a level not seen since May 7, 2020, according to statistics from China Securities Finance and Bloomberg.
On July 31, the value fell 0.6%, continuing the greatest sequence of consecutive falls ever recorded at fifteen days.
The CSRC issued several rulings this month to limit the practice of borrowing stocks for short-selling, which led to this unwinding.
The CSRC increased the minimum collateral required of short-sellers and put a halt to the securities-lending operations of China Securities Finance, a state-backed margin finance company.
China’s $8.5 trillion stock market has been in a sustained slump over the past year, and the regulator has been cracking down on short-selling as a result.
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In response to the negative effect that short-selling has on China’s stock market performance, the CSRC has recently taken steps to restrict short-selling operations; this trend runs counter to the data showing a sharp fall in the value of shorted equities on the Chinese exchange.
To reassert investor faith, several countries have turned to short selling, China included.
South Korea plans to implement measures to curb short-selling in the first quarter of 2025 in order “to prepare… systems intended to prevent naked short selling and to alleviate concerns about potential disruption in the market’s fair pricing function,” according to a June announcement.
Short sellers had access to fewer equities in Thailand that month as the country raised the market capitalization barrier for borrowing stocks.
To better monitor and control China’s enormous $5.1 trillion stock market, the country’s securities regulator recently elevated the head of its law enforcement division to the position of vice chairman.
At the same time, predatory short-selling is still a major problem in America.
