China is planning to bolster its nascent shortselling market with the launch of a Chinese Securities Lending Exchange as early as the first quarter ot this year, according to a report in the Financial Times newspaper, which cites “securities officials and fund managers” as sources.
In an effort to deepen capital markets, the new body will facilitate shortselling, which has been hampered by the limited number of shares available for qualified asset managers to borrow, said the report. The report said the Chinese Securities Regulatory Commission will be the first shareholder in the body, which was first mooted last year. The Shanghai and Shenzhen stock exchanges, as well as brokerage firms and other financial institutions, will also be shareholders, it added.
The report said it is not clear which firms will be involved, but in early 2010, when short selling was embraced, just six had licences to engage in securities lending and margin financing. At the end of that year, only 25 brokerages had licences to provide a broader array of prime services, added the report.
According to the report, shares will be made available by the exchange to qualified fund managers in China who wish to borrow them, for a fee. Shares will be sourced from institutions in China including banks, insurers and fund management firms.
“Securities firms believe Beijings move will spur the development of the hedge fund industry. Chinas hedge fund industry is dominated by less regulated sunshine funds, which target wealthy individuals and are the closest thing China has to hedge funds,” said the report. There were 400 such funds operating at the end of 2010, said the FT, citing the Securities Association of China as a source.
(JDC)