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CSRC Suspends A-share Securities Refinancing – An Interim Measure for Counter-Cyclical Adjustment

2024.07.18 XIE, Qing (Natasha)ZHANG, Chi (Austin)、LUO, Danchen

On July10, 2024, the China Securities Regulatory Commission (CSRC) announced the suspension of all A-share securities refinancing. In the press release, the CSRC said that the decision was made after assessing the current market conditions and after an application by the China Securities Financing Corporation Limited, who is authorized to provide securities refinancing services to securities firms, responding to investors’ concerns and aiming to maintain market stability. We believe the measure is an interim measure aiming to further stabilize the market.


The CSRC announced that (i) existing securities refinancing contracts can be extended but must be settled no later than September 30, 2024; (ii) the lowest margin ratio for securities borrowing and lending (SBL) should be adjusted from 80% to 100%; and (iii) the lowest margin ratio for SBL applicable to private securities investment funds will be adjusted from 100% to 120%. These increased ratios will be implemented from July 22, 2024.


According to the press release, the CSRC reviewed the evolution of margin financing, SBL, and securities refinancing businesses and acknowledged their positive effect to the market and also that these businesses can be utilized as tools for the regulatory authority to make counter-cyclical adjustment towards the market adapting to the change of the market conditions, hence explaining that these suspension measures and counter-cyclical adjustments taken by the regulatory authority are temporary. 


The CSRC noted that relevant regulatory measures targeting SBL and securities refinancing have already been implemented since August 2023. This includes (i) restricting strategic investors from lending out shares obtained through strategic placement, (ii) increasing the margin ratio for SBL, (iii) reducing the efficiency of securities transfers under the agreed-transactions of securities refinancing businesses, (iv) suspending the increase in the size of securities refinancing, (v) requiring securities firms to strengthen the management of client trading behavior, and (vi) enhancing regulatory enforcement against improper arbitrage activities using SBL.


According to the press release, by the end of June 2024, SBL and securities refinancing had fallen by 64% and 75% respectively. The size of SBL accounts for only about 0.05% of the tradable A-share market value, and the proportion of the daily short selling amount to the daily turnover in the A-share market has decreased from 0.7% to 0.2%. The CSRC believes that the impact of SBL and securities refinancing on the market has significantly weakened and they decided to suspend securities refinancing at this point accordingly.


The CSRC emphasized the need to adhere to a problem-solved and goal-oriented approach, with a focus on maintaining the fairness of legal regimes and enhancing the stability of the capital market. They stated that they will continue to strengthen daily supervision, implement counter-cyclical adjustments, and crack down on improper arbitrage activities based on market conditions.

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