Chinese regulators have restricted short selling of stocks in their latest bid to stabilize the world’s second-largest equity market.
Investors who borrow shares must now wait one day to pay back the loans, Bloomberg News reported, citing statements from the Shanghai and Shenzhen stock exchanges issued after the close of trading on Monday.
The measure prevents investors from selling and buying back stocks on the same day, a practice that may “increase abnormal fluctuations in stock prices and affect market stability”, the Shenzhen exchange said.
Under the old T+0 rule, “you can go short in the morning and cover your shorts before market close the same day and lock in your profit, if your bet is right,” Xian Liang, a portfolio manager at US Global Investors Inc., said.
“Now with T+1, you can’t cover your short position on the same day, and have to wait till next day at the earliest. This new rule should discourage speculative short sellers — day traders — and help mitigate intraday volatility.”
China is taking unprecedented measures to stem a stock rout that has wiped out almost US$4 trillion in market value since mid-June.
Earlier on Monday, the Shanghai Stock Exchange warned two trading accounts for making a “large amount of sell orders affecting security prices or volume”.
The exchanges have frozen 38 accounts, including one owned by Citadel Securities LLC, as authorities probe whether algorithmic traders, or those who use computer-automated orders to buy and sell stocks, are disrupting the market.
The adoption of the T+1 rule for short selling won’t affect normal margin trading and securities financing and will help safeguard market stability, the Shenzhen exchange said.
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